Mike Li, a factory owner in China’s Guangdong province, is captivated by events thousands of miles away in Washington when President Joe Biden pulled out a nearly $ 2 trillion economic stimulus bill.
“We were previously a little concerned about the pandemic abroad and how it would affect our orders,” said Li, whose factory turns out to be sports shoes sold to Western markets. When the deal closed last week, WeChat groups for his industry were “thrilled” and “now there is a good chance there will be more orders to come,” he added.
Whether it’s Chinese-made trainers, French wine or auto parts from Mexico, the $ 1.9 trillion Biden stimulus package – which will add 9 percent of national income to the U.S. purchasing power – won’t make the U.S. only helping to recover from the coronavirus pandemic, but also promises to propel the global economy towards its pre-pandemic path.
Erik Nielsen, UniCredit’s chief economist, used a Danish proverb to describe its stimulating effect on the rest of the world: “When it rains on the priest, it drips on the town clerk.”
Karen Ward, chief European strategist at JPMorgan Asset Management, used a more modern metaphor: “When the US has a party, the rest of the world gets an invitation.”
With $ 1,400 per person incentive checks landing on doormats in the US, the hope in China is that the party will come soon. While some Americans will spend their windfall on activities such as dining out and entertainment, the fact that these are still constrained by the pandemic increases the likelihood that the money will flow into imported consumer products.
Allianz, the insurer, estimates that $ 360 billion of the $ 1.9 billion stimulus money would be spent on imported goods, with China being the largest recipient, receiving about $ 60 billion.
“It’s pretty simple – it’s good for Chinese exports,” Ting Lu, China chief economist at Nomura, said of the coronavirus aid package. As Americans spend more time at home because of the coronavirus, “they buy TVs, laptops, even bicycles and refrigerators,” he explained.
Last week’s US retail sales figures showed that checks paid out under the latter leg of former President Donald Trump’s stimulus measures increased monthly spending by 7.6 percent in January.
Translated into exports, the contrast from the early days of the pandemic is great. China’s exports were up more than 60 percent in January and February, compared to when the country closed a year earlier.
UBS this week raised its forecast for China’s export growth in 2021 from 10 percent to 16 percent, citing Biden’s stimulus package and expectations of a “stronger recovery in the US and globally”.
With the US and China economies likely to get hot, the rest of the world will follow, said Christian Keller, chief of economic research at Barclays Investment Bank. With the world’s two largest economies accounting for 40 percent of the global gross domestic product, “they should certainly also contribute to the pull of the European economy, which is lagging behind in controlling Covid-19, and many other small open emerging economies, ”he said.
However, a rapid economic recovery is rarely unbridled good news. Li, owner of the Guangdong sports shoe factory, pointed to higher raw material costs and his difficulty in hiring staff. “There are too many orders and too few people,” he said.
Phoebe Xie, who runs a plastics machinery company in China’s Wenzhou province, said she was concerned that the high demand for her products would be more than offset by rising costs. “The most direct impact of the stimulus on our industry is the rising price of raw materials,” she said.
“The cost of the same machine has increased by $ 10,000 this year, which is difficult for our customers to accept,” she added. Other manufacturers complain about bottlenecks in production.
The surge in imports from China will also increase tensions within the US over the country’s large bilateral trade imbalance. Chad Bown, a senior fellow at the Peterson Institute, said US exports to China were far from meeting the terms of the trade deal the two countries signed just over a year ago.
This could increase domestic pressure on Biden as the US begins to suck up imports as a result of the stimulus package. The animosity that was evident when Antony Blinken, the US Secretary of State, met his Chinese counterpart, Yang Jiechi, in Alaska on Friday, shows the tensions already overshadowing the complex Chinese-American relationship.
But there’s a chance, according to Ward, that if U.S. domestic sensitivities to trade can be mitigated, the stimulus could have an even more significant spillover effect by giving the rest of the world an example of how best to do it. be recovered from the pandemic.
The OECD said in its latest economic outlook that the US stimulus would increase the global growth rate by 1 percentage point in 2021. If followed by other countries, it also provided a route to a much better recovery than that following the 2008-2009 global financial crisis. . crisis, the OECD added.
“It may be a blueprint for others,” said Ward. “The ambition alone sets an example for governments around the world.”
Additional reporting by Wang Xueqiao and Qianer Liu