China’s Flailing Economy Could Impact the US More Than Some Experts Think

Introduction

China’s tanking economy will have a bigger impact on the US than some experts think, according to top economist David Rosenberg. In an op-ed for the Financial Post on Tuesday, Rosenberg Research founder and junior economist Atakan Bakiskan highlighted the potential spillover effects of China’s economic downfall.

Spillover Effects on Global Economy

The Chinese economy has entered a severe slowdown, with deflationary terrain and a crisis in the property sector. This economic downfall will negatively affect the global economy, primarily through trade channels with countries highly dependent on China.

Impact on Commodities Trade

The commodities trade, especially key metals, will be significantly affected by China’s economic problems. Countries that are top exporters of copper and iron, such as Chile, Australia, and Peru, are at the highest risk of spillover effects.

Foreign Direct Investment in China

Total foreign direct investment in China has plummeted from $101 billion in the first quarter of 2022 to $5 billion in the second quarter, representing a 95% plunge. The US is among the top five countries with significant foreign direct investment exposure in China.

Negative Repercussions for Stock Market

Companies operating in China with a focus on serving the Chinese economy and the rest of Asia will likely experience a dampening effect on their worldwide profits. This indirect effect will have negative repercussions for the stock market, particularly for companies with footholds in China.

Beijing’s Economic Crisis

Experts have warned that Beijing could risk an economic crisis due to high debt loads, poor demand, a failing property sector, and deflation. However, the economic outlook could improve if China maintains appropriately loose monetary policy, according to Morgan Stanley strategists.