Donald Trump’s displeasure with Chinese economic policy is well documented. Mr. Trump takes issue with China’s devaluation of its currency; their determination to make their exports cheaper than American goods; and the impact a devalued Chinese currency has on America’s manufacturing industry.
Devaluation hasn’t been working too well for China, especially over the past decade. The currency has been appreciating. Some estimates have the renminbi overvalued approximately 30%. In addition to the “tax reduction” spurred by falling prices at the gas pump, Americans have been experiencing a windfall due to the pricing of Chinese products. While Mr. Trump lays blame for America’s deteriorated manufacturing industry at the feet of Chinese economic policy, the culprit may actually be the replacement of labor with more efficient technology.
Mr. Trump has made many a claim on the campaign stump that China is beating the United States in the world economy, but recent turmoil in the markets begs the question whether this Asian tiger is losing its mojo. A report recently released by Goldman Sachs points out that China is having a rough time converting an investment and export driven economy into a consumer driven economy, the kind of economy that Mr. Trump would prefer because it would make available to American producers a market of over one billion people.
To keep current growth and avoid a “hard landing” of its economy, China may have to increase its debt, according to Goldman Sach’s Sharmin Mossavar Rahmani. If not, that hard landing may well be just a couple years around the corner. Goldman Sachs in its report recommends to its clients that they continue reducing their allocation of assets to emerging markets including, I take it, China’s.
At first glance this doesn’t bode well with Mr. Trump’s investment strategy for China. Why push to open markets in an economy that may have peaked and can’t get its re-balancing act together?
But if China’s downward spiral continues to cause volatility in the markets and raises the uncertainty that accompanies volatility, Mr. Trump may be able to use China’s woes to his political advantage. If global slowdown ensues this year in part to China, Mr. Trump might argue that what is happening in the world’s largest country and second biggest economy is the fault of President Obama and that a vote for Hillary Clinton would pose a risk that poor policies will continue to come out of Washington further damaging the American economy.
He hasn’t made that argument yet, but given the circus that this New York carnival barker occupies at center stage, such a move would not not surprise me.