The “trade war” between the US and China is misguided when it comes to economic fortunes, according to one analyst. As Chinese Premier Li Keqiang gave a speech at the Boao Forum for Asia on March 27, he played down the idea of an economic slowdown. As ongoing disputes with President Donald Trump are still unresolved, fears are that the crisis is starting to bite. However, in addressing the conference, Keqiang said that market expectation had “significantly improved” and major economic indicators have been “steady”.
The Gold Standard for Economic Analysis May Not Apply
As it often is, gold has been used as a measuring stick for the state of the global economy and, specifically, national economies. By reviewing gold price movements using XAU/USD charts, as noted by DailyFX, traders can get an insight into the underlying health of a nation. In support of this, we can look back through history and see how the price of gold correlations to major financial slumps.
As noted by this guide to financial bubbles, gold prices dropped by 64% in 1982. This slump came at the same time the US was in the midst of a recession. With gold prices and economies so closely linked, the precious metal has become a marker of China’s recent economic movements.
Following a slowdown in China’s GDP at the start of 2019, gold prices took a tumble. Erasing a seven-month high, the price per ounce dropped by $20 to $1,278 in late January. By the end of February, the price had surpassed $1,300, according to CNBC, and was holding firm in light of the latest round of US/China trade negotiations.
However, while another round of talks will have investors tracking the gold markets, chief economist Daniel Lacalle believes such moves are misguided. Discussing the trade war with Tyler Yell, Lacalle said that economic swings were a product of “general growth issues”, not trade wars. In his opinion, governments and central banks see a financial crisis as a problem with demand. For him, that’s a mistake, and forcing stimulus into the market creates a “sugar rush” effect that doesn’t actually increase demand.
Put simply, he believes that pumping an economy full of stimulants creates the facade of demand and masks the underlying problem. What’s more, he believes it causes adjustment issues further down the line. Much like a patient on medication doesn’t immediately return to a normal state, economies suffer a similar comedown. Therefore, to focus on the trade wars as the reason for slower rates of economic growth in China is wrong, in Lacalle’s opinion. While he stops short of offering a simple solution, the idea is interesting in the context of retail in Asia.
Retail Issues May Belie a Bigger Problem
The consensus is that tensions have harmed retail across the two continents. In November 2018, Bloomberg reported that US Asian supermarkets had seen a drop in sales because Trump’s tariffs forced them to pay more for imported goods. The end result is higher prices for groceries, which has subsequently led to a loss of trade. While this can be directly linked to the trade war, these micro issues can’t be applied on a macro scale if Lacalle’s perspective is correct.
China’s economy and, in turn, its retail sector may be stagnating because of too much artificial growth. The idea of a trade war is juicy headline fodder for media outlets. However, analysts are by no means in agreement on why growth has slowed. While it may well be because of tensions with the US, there are those that believe the crisis runs much deeper than that.