Xi may be reeling from Trump's latest tariff threat, but it's unclear if the US or China is losing

The ongoing trade war is hurting China more than the U.S., according to one China expert.

Chinese President Xi Jinping “must now be reeling,” Gordon Chang, the author of “The Coming Collapse of China,” said on Yahoo Finance’s On the Move, referring to President Donald Trump’s plan to impose a new 10% tariff on $300 billion worth of Chinese imports starting September 1. “I mean, what’s happening in Beijing right now, it’s just inexplicable.”

China reported GDP grew at 6.2% in the second quarter, but Chang said it’s probably much lower, citing a Chinese economic professor at Renmin University near Beijing, who wrote in December 2018 that Chinese economic growth would stall this year and fall below 2%.

“The underlying indicators for June all showed negative,” Chang pointed out, adding that any retaliatory measure China takes will hurt them more than the U.S. “Both PMIs for the manufacturing sector were below 50. Imports were down 7.3%. The first numbers for July don’t look very good either.”

“I think that essentially we (the United States) are in a pretty good position. Got a more robust economy than they do,” he said. The U.S. is also “getting supply chains out of China. We’re reducing our vulnerability there.”

U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque

Trade war not necessarily causing China slowdown

Patrick Chovanec, the managing director and chief strategist at Silvercrest Asset Management, disagrees with Chang and said, “China’s slowing, but it’s not slowing primarily because of the trade war. China is slowing because of deep embedded issues in the Chinese economy.”

Chovanec pointed to China’s over reliance on credit expansion, over investment, and mounting burden of bad debt that he says, “they would be grappling with, with or without these trade tensions.”

The trade war has actually caused China to hunker down, he said, adding that “instead of being open to making many of the adjustments that they need to get on a more sound growth path, they’re just clamming up.”

Despite Trump’s plan to impose fresh tariffs on China, trade negotiations resume early next month in Washington D.C. And Chovanec said the chance for genuine resolution doesn’t look very good.

“President Trump can wake up tomorrow and say he’s satisfied with what the Chinese are offering,” he said. “But in terms of substantive resolution of not only trade issues, but a host of different issues, on security on cybersecurity with China, those are not going away anytime soon.”

Chovanec pointed out that both the U.S. and China believe they have greater leverage, which is why the negotiations have failed to produce an agreement. “Both sides will test this out,” he said. “And the way you test it out is through pain and now apparently we’re going to see some acceleration in that.”

Adam Shapiro is co-anchor of Yahoo Finance On the Move.

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