China's Slowing Economy Could Give U.S. An Advantage In Trade Talks

Jan 29, 2019
Originally published on January 29, 2019 2:48 pm
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There's another factor that could affect these trade talks - China's economy. It's slowing down. And American companies are feeling it. Yesterday, the construction machinery company Caterpillar said its earnings would be flat this year. They cited China's slowing economy. President Trump says the slowdown gives his negotiators leverage in their efforts to change Beijing's trade policies. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Right now China and the United States are engaged in all-important talks aimed at ironing out their differences over trade. If the talks don't succeed by the end of March, President Trump has threatened to increase tariffs on Chinese imports. As Trump sees it, the United States has an advantage over Beijing.

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PRESIDENT DONALD TRUMP: China very much wants to make a deal. We'll see what happens. I like where we are right now. We're doing great as an economy. They're not doing very well because of the tariffs.

ZARROLI: Trump says China needs the U.S. right now, so it has no choice but to give in to U.S. demands. There's no question China's economy is slowing. Eswar Prasad of the Brookings Institution says consumers are buying less. Apartments are sitting empty. Retail sales are down.

ESWAR PRASAD: For instance, the sale of cars - in particular, luxury cars - has fallen quite sharply.

ZARROLI: But China expert Patrick Chovanec of Silvercrest Asset Management says despite Trump's claims, what's happening in China right now has little to do with U.S. tariffs.

PATRICK CHOVANEC: Contrary to popular opinion, I don't think that U.S. trade pressure is actually a major factor in why China's economy is slowing. China's economy would be slowing anyway.

ZARROLI: China's growth, he says, has been fueled in large part by massive construction of roads, housing, office buildings and factories. It's built more infrastructure than it needs. And it's made a lot of loans to state-sponsored companies that probably shouldn't have gotten them. David Dollar, a former emissary to China in the Obama administration, says that kind of lending and spending can't go on forever.

DAVID DOLLAR: For a long time, they had very rapid growth of credit. And that was pushing investment and keeping their growth in some ways artificially high. And now they're paying the price for that.

ZARROLI: Over the years, China has sometimes tried to cut back on bad loans. It's doing so again right now. And some companies are failing as a result. And Dollar says that's what's causing the current slowdown. Eswar Prasad says U.S. trade pressure is complicating an already bad situation for the Chinese. But that alone isn't going to force China to make concessions.

PRASAD: The Chinese do want a deal. But they don't want it so badly that they're willing to capitulate to the U.S. on all of the demands the Trump administration has made.

ZARROLI: And even if China wanted to make dramatic changes, there's a limit to how much it can do. David Dollar says China's reliance on state-owned enterprises and its lax intellectual property protections are deep-seated problems. They won't change overnight.

DOLLAR: I think the most you could expect would be China making some initial steps. But they're not going to change their whole system overnight because the U.S. is demanding it.

ZARROLI: What China can do now, he says, is offer to buy more U.S. exports and open up some of its markets to outside competition. And he says those are the kinds of concessions that are most likely to be made at the current talks. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.