Biden's Parting China Blow Based On Flimsy Math


(MENAFN- Asia Times) Joe Biden's claim that China“will never surpass” the US in economic terms has sparked fresh debate among analysts everywhere. Yet count prominent mainland economist Justin Lin Yifu among those who aren't buying the outgoing American president's math.

Lin, a former World bank chief economist, predicted 31 years ago that China's gross domestic product (GDP) would top the US' as early as 2030 and by 2035 at the latest. Speaking at the Asian financial Forum in Hong Kong on January 13, Lin said that“under normal circumstances” his prediction“should remain unchanged .”

Caveats abound, of course. One is that Lin's take on the changing of the GDP guard is based partly on exchange rate movements as China lets the yuan rise. Any move by Xi Jinping's Communist Party to devalue or manipulate the yuan for years to come could, in theory, impede China's GDP trajectory.

But there's nothing particularly“normal” about either the state of US finances that Biden's government leaves behind or the giant trade war Donald Trump is threatening. Between Washington's US$36 trillion national debt and the Trumpian trade clashes to come, there are plenty of reasons to worry about self-inflicted US headwinds, old and new, clouding the outlook.

Then there's the inflation surge to come if Trump makes good on his tariff threats, including a 60% blanket tax on all Chinese imports. In December, US consumer prices were rising at a 2.9% rate year on year.

Wall Street rallied on the news, largely because prices are rising less rapidly when volatile food and energy goods are removed from the basket.“The Federal Reserve is
ok with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December,” says Eugenio Aleman, chief economist at Raymond James.

Yet economist Robert Frick at Navy Federal Credit Union adds that“core inflation rising less than expected may portend good news for inflation in the months ahead, but this was a particularly painful report for consumers.” Frick notes that the“cost of necessities that hurt household budgets, especially for lower-income Americans, were among the top reasons inflation rose in December.”

If and when Trump layers on ever more taxes on imports, upward price pressures may intensify. Many economists worry Trump's 60% tariff on China and 25% levies on Canada and Mexico to start might have the Federal Reserve mulling rate hikes instead of cuts.

As such,“US equities may now need clear relief from hawkish policy to make a sustained move higher,” says Goldman Sachs strategist Dom Wilson.“We think equities may remain more fragile until we reverse the perception that the 'Fed put' is now struck lower.”

This reportedly has Trump considering a more gradual imposition of tariffs, so as not to suddenly push inflation significantly higher.

“If the focus is more on deregulation, tax cuts and potential sweeteners than changes to tariffs and immigration, then growth could be much stronger in 2025,” says Diane Swonk, chief economist of KPMG.“Otherwise, risks are for higher inflation and weaker expansion.”

What's more, many doubt Trump, considering the array of China hawks he's gathered in his next cabinet, will have the discipline to forge a giant trade deal.

Trump's“transactional approach won't work everywhere, and in some cases, it will backfire,” warns Ian Bremmer, CEO of the Eurasia Group.“China isn't prepared to offer meaningful enough concessions to achieve a grand bargain, especially amid an absence of communication and management channels.”

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Asia Times

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