While Donald Trump boasts “I beat China,” a bigger question remains. Will China’s stock market volatility beat up the US economy in 2016? The Chinese stock market has taken a nose dive in the first trading week of the New Year, taking the US indexes down with them. This is happening at a time when there already was concern in late 2015 about a possible US recession in 2016.
The facts on China reflect an economy growing more slowly than historical levels at 7% vs. 10%+. This level of growth is still strong as the Chinese service economy is performing well even as its industrial economy downshifts. This 7% growth is still strong and far better than the 2% growth we have had here in the US.
The US is not a large exporter to China so it should not directly impact our economy in terms of drag on GDP. However, indirectly, this slower growth could result in China importing less from emerging economies and other developed economies, thereby weakening the global economy. This could have a negative effect on our economy. Whether or not China has a negative demand impact, it could still damage US consumer and business owner confidence levels. Business owners are objectively less confident going into 2016 due to a number of factors. Whether it’s the turmoil in the Middle East, increasing interest rates, or fears of terrorism, there’s a palpable air or cautiousness in the business community. Should China’s stock market and the Dow Jones continue to plummet, this could sour the animal spirits in the economy and make this year a painful one for us all.