'For most, business has never been worse': The impact of Trump's trade war on China

The United States is currently winning this trade war, as the impact on Chinese industry seems to of a far greater magnitude than that experienced by American business.

October 11, 2018
By Tarric Brooker

The trade war between the United States and China continues to periodically escalate as new tariffs and counter-tariffs are announced. Government statistics agencies in China continue to claim that all is well and that there is no substantial impact of American tariffs on Chinese industry.
Over the years, Chinese statisticians have become infamous for crafting an acceptable narrative of central government competence and stability rather than an accurate picture of any particular performance metric.
For example, during quarters of weak economic growth, it's routine to inflate the growth rate in the reported statistics, then, when the economy has a boom quarter, understate the growth in order to maintain the image of a stable and controlled economic boom.
However, there is a prominent metric that works independently from this system of chronically incorrect statistical reporting: the CKGSB Business Conditions Index, compiled by the Cheung Kong Graduate School of Business.
This particular metric has fully illustrated the expansions and contractions of Chinese industry over its seven year history, providing a unique statistical insight into a nation where accurate economic data can be at times hard to come by.
The most recent reading of the CKGSB Index was its lowest level on record, showing in detail the heavy toll President Trump's trade war is having on Chinese industry.
"Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months," Li Wei, the economics professor at CKGSB who oversees the survey, said in a commentary accompanying the September survey results (which were recently removed from the CKGSB website). "For most, business has never been worse."
To put the record low number of the CKGSB Business Conditions Index into perspective, the current reading of 41.9 is far lower than even Russia's record-low PMI of 47.6, and that country is currently suffering heavily from economic sanctions.
As those critical of President Trump's trade policies continue to point to the high cost of the trade war on American businesses, this survey and associated research illustrate just how much of a toll the trade war is taking on Chinese industry.
If the results of this particular metric hold true for industry throughout China, the United States is well and truly winning this trade war, despite the large number of metrics and articles with claims to the contrary.
As the trade war continues to damage industry in China, it's important to remember that international trade is not like a light switch that can be easily switched on and off at will.
Chinese companies continue to lose market share to competitors throughout the rest of the world, as their goods become uncompetitively priced due to the tariffs. The share of the market they previously possessed may be lost permanently, as China's competitors become integral parts of the supply chain of goods to American businesses.
For this reason every day the trade war continues, the lost contracts and relationships with American businesses will do short- to medium-term damage to Chinese industry. The growth potential of the Chinese economy will also be impacted, unless a resumption of previous agreements underpins a negotiated agreement between the two nations.
While President Trump may endure criticism and attacks by those critical of his trade policies, the impact of the trade war on the American industry overall remains relatively marginal. Meanwhile, President Xi is dealing with the reality of a China potentially in too much debt to once again spend its way out of trouble and with too much on the line geopolitically to gracefully back down from the dispute.
Ultimately, if metrics like the CKGSB Index are correct, the United States is currently winning this trade war, as the impact on Chinese industry seems to be of a far greater magnitude than that experienced by American business.
Tarric Brooker is a freelance journalist and political commentator. He also runs a political and current affairs website at avidcommentator.com.
Image credit: Pixabay.