“It is highly likely that China, which already is the world’s fastest growing economy and currently ranks as the largest in terms of purchasing power parity, will emerge as the world’s new economic superpower by year end. Perhaps it is this which Trump fears the most”
Raggie Jessy Rithaudeen
President Donald Trump is clearly fearful of an economic catastrophe ahead of the November election and is mulling the removal of health restrictions imposed to fight the Covid-19 pandemic.
But opening America for business in a few weeks could have the opposite effect, says Ben Bernanke, the former Federal Reserve chairman credited with rescuing the American economy from the 2008 crisis.
“It’s important that before we put everyone back to work, we have the public health situation under control,” Bernanke said on CNBC.
Bernanke, who studied the Great Depression, said the current situation is “more like a major snowstorm or natural disaster than a Great Depression-style downturn.”
Trump wants the United States”opened up and raring to go by Easter.”
But Mark Zandi, chief economist at Moody’s Analytics, told CNN Business, “If the president decides to go 180 on us and open by Easter, that will create chaos and confusion. That is the prescription for a depression.”
According to news reports, unemployment benefits spiked 33 per cent last week, with Goldman Sachs predicting that figure will spike eightfold this week to a record 2.25 million.
Morgan Stanley sees unemployment in the US surging rapidly past the current 3.5 per cent, averaging at a record 12.8 per cent in the second quarter.
Economists are already bracing for a historic collapse in the GDP – Goldman Sachs estimates that the economy will contract at a 24 per cent annualized rate in the second quarter, while Morgan Stanley sees a record-breaking drop of 30.1 per cent.
But perhaps it is not this which concerns Trump the most.
Entering into presidency off a campaign trail that promised to “make America great again,” Trump saw China robbing Americans of employment due to the rapid growth in the Asian giant’s production sector and unbelievable demand for its cost-effective products worldwide.
Trump’s promise was to bring jobs back into America, which he did, but the global pandemic is set to undo a lot of what he accomplished these past four years.
The American media is already on it, painting a grim outlook of the Chinese economy which one prominent site claimed would “suffer a double whammy as its export partners are overrun by the Coronavirus.”
It wrote, “In China, the economic fallout of the COVID-19 outbreak will drag on 2020 gross domestic product (GDP) growth as the country endures the twin hits of the early-year domestic slowdown and the as-yet-unknown drop in overseas demand in key markets.
“But the country’s high debt levels — partly fueled by its massive stimulus during the 2008 financial crisis, in addition to the structural slowdown already underway before the outbreak — means Beijing will hesitate to mirror the large-scale spending being implemented in other virus-ravaged economies, such as the U.S., Japan and South Korea. China will now have to choose whether to help buoy its employment and annual growth targets through spending that could jeopardize long-term economic stability.
“China’s combined January-February economic data released in mid-March showed a worse-than-expected hit to the economy due to the virus, with value-added industrial production down 13.5%, fixed asset investment down 24.5% and retail sales down 20.5%.
“Even before Covid-19’s unexpected emergence, China had been in the throes of a structural slowdown in its economic growth. Over the past decade, China’s GDP growth, according to government figures, has gradually moderated from above 10% in 2010, to below 8% in 2015 before hitting 6.6% in 2018 and softening further to 6.1% in 2019 — the slowest in three decades.”
Yes, America seems to be scarring off investors from China with its signature media-mudslinging by painting only the gloomily coloured strokes onto the Chinese canvas.
The writers forget – in a country where an employee in the urban area earned around 82,413 yuan (USD 11,537) annually – on average, in 2018 – and where millions of uneducated, rural womenfolk are willing to work in production for a ridiculous USD10 weekly, the Government of China isn’t exactly going to face a hard time bouncing the economy back.
In November 2019, China’s population stood at 1.435 billion, with over 65 per cent of it being persons aged 20 – 65, conforming to a class of citizens fit for employment.
As demands soar post Covid-19, and with the likelihood that the highly disciplined, industrious and less demanding Chinaman would work for a wage much less than the national average of USD961.5 monthly, China may reap some benefits off the crisis.
Try negotiating a national average wage of USD800 in the US and see what happens – try getting a woman to work in production for a weekly wage of USD10 and tell me how it works out.
The Chinese may be so self sufficient with domestic demands in the coming months that the temporary drop in exports won’t exactly keep the economy from bouncing.
As a matter of fact, as the American dollar weakens and as the Great Depression-styled downturn happens in the US, investors are bound to shift their gaze towards China and other Asian economies, such as Malaysia, which seems to have weathered the Covid-19 pandemic well.
This would inevitably result in a new cluster of “emerging markets” pivoting their economies on Chinese trade to bolster market confidence and reduce the risk of liquidity stress, funding difficulties and downward pressure on share prices.
As it is, investors are already pleased with the ‘draconian’ restriction measures taken by Malaysia and several Asian countries to contain the pandemic, causing the Ringgit to register gains against the US Dollar.
It is highly likely that China, which already is the world’s fastest growing economy and currently ranks as the largest in terms of purchasing power parity, will emerge as the world’s new economic superpower by year end.
Perhaps it is this which Trump fears the most.