An expert on China says the country is facing greater consequences than the U.S., if trade negotiations fall through between the world’s two largest economies.
“Certainly, China has more to lose,” said Gordon Chang, author of “The Coming Collapse of China.”
While the potential failure of the U.S.-China talks would have global fallout, Chang told Yahoo Finance that Beijing has more on the line given its slowing economy.
“China in reality is growing maybe 1%, maybe even contracting,” he said.
Meanwhile, the U.S. economy is experiencing strong growth and a roaring jobs market.
China’s official data shows the economy expanded at a rate of 6.4% in the first quarter, but Chang was highly skeptical of those figures. Some observers have long suspected Beijing inflates the data, which could mask more softness than what’s reflected in official figures.
Given slowing growth and heavy debt, the world’s second largest economy can’t afford to walk away from a deal with the U.S., Chang suggested in an interview.
On Sunday, Trump stunned the world by threatening to hike tariffs on $200 billion worth of Chinese goods as early as Friday. Markets initially seized up, starting the week sharply lower, but recovered after the Chinese delegation pledged to make its way to Washington to continue negotiations.
Still, the U.S. is sticking to its commitment to raise import taxes by the end of the week. That has investors and economy watchers like Chang worried about whether the two sides can strike a deal — and how that failure might play out for Chinese President Xi Jinping.
“The one thing we’ve got to remember about the Chinese side is that Xi Jinping owns this trade war. He’s being blamed for it,” Chang told Yahoo Finance.
“So if he doesn’t come up with a good result, it’s better for him not to have a trade agreement at all,” he added.
Chang predicted a deal won’t be set in stone this week, but he said it was necessary for the Trump administration addresses issues with China, like intellectual property theft — even if potentially higher tariffs impact U.S. consumers.
“This is going to cost us to sort this out. But it’s absolutely necessary that we bear this pain now,” said Chang.