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The Economies of These Two Countries Are Moving in Different Directions

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The Economies of These Two Countries Are Moving in Different Directions
Source: Pinterest

The Economies of These Two Countries Are Moving in Different Directions

Source: Pinterest

In a not-so-surprising update, it appears that the United States and China totally have different economic strategies and growth paths. This is reflected in their individual stock markets. This also reveals the distinct approaches and outcomes of their economies.
 
According to Business Insider, experts have evaluated the economic and business outlooks of these two superpowers and shown the disparities between their strategies.

US Experiences Notable Growth

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The United States recorded a strong quarter of economic growth. The real GDP rose 3.3% in the last three months of 2023, exceeding expectations. This also follows a spectacular 5% gain in the previous quarter, going against the recession narrative.

The International Monetary Fund responded to this by lifting its global GDP forecast from 2.9% to 3.1%. According to Business Insider, this further reflects the strength of the U.S. economy.

The U.S. Economy Did Shrink

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According to the Financial Times, the U.S. economy dropped by roughly 30% at the end of last year, resulting in a 3% decline in the value of the U.S. dollar.

Despite its problems, the United States economy remains the greatest in the world. China, however, is failing to catch up despite its growth.

The U.S. Trade Solution

Source: United States Trade Representative/Youtube

The United States is shifting its business partnerships as it focuses on Mexico. Mexico traded more with the United States in 2023 than it had previously.

On the other hand, the balance of trade in the U.S. has been concerning. For the first time since 2019, the ratio between exports and imports is 40% of exports.

China’s Economic Growth

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Currently, China has one of the world’s fastest economic growth rates, pulling almost 800 million people out of poverty. China also has the most purchasing power based on the current market exchange rate.

While the U.S. dollar is the dominant currency in the global market, China’s expansion may pose a danger to this position.

China Faces Economic Challenges

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In contrast, China faces enormous economic hurdles while recovering from pandemic lockdowns.

According to Business Insider, mounting debt, deflation, and a troubled real estate market have reduced foreign investment in the country’s financial markets.

US-China Economic Imbalance

Source: Business Recorder

Arthur Laffer Jr. is the president of Laffer Tengler Investments. He spoke with Business Insider about the imbalance between the United States and China and highlighted its influence on both countries.

He said, “A strong U.S. economy buys more foreign goods from China with a stronger U.S. dollar,” which helps sustain China’s manufacturing and exports. However, he also pointed out that China’s policy initiatives are more like “Band-Aids” that fail to address the root causes of its economic issues.

Xi Jinping's Growth Ambitions

Economic stock

According to Business Insider, China is working to fulfill its growth goals under President Xi Jinping’s leadership. This is despite internal problems and the external economic power of its main competitor, the United States.

China’s Economy Hits a Rough Patch

Economic stock

This circumstance puts Beijing in a difficult position as it navigates domestic difficulties and the U.S.’s relative economic performance. However, the United States may enjoy economic growth if the Chinese economy struggles. The Chinese government startled investors by not lowering key interest rates that impact mortgages.

Economists say the move will make China’s real estate sector more challenging, decelerating the GDP. “All else equal, a flagging Chinese economy may be one of several catalysts that could lead to [a] recession later this year or early next,” wrote Jason Pride and Michael Reynolds, strategists at investment management company Glenmede, in a note Monday (via CNN).

China’s Disinflation Could Cause Problems

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“It seems China’s disinflation problem is coinciding with the European and U.S. struggle to significantly bring down inflation,” said Edward Moya. Edward is the senior market analyst at data and analytics firm OANDA.

Moya continued: “Overall this is going to lead to a much weaker demand for European and U.S. goods. That will help bring down inflation for a lot of the advanced economies that have been aggressively hiking interest rates.”

Diverging Consumer Bases

Source: CNBC/YouTube

Joseph Seydl is a senior markets economist at JPMorgan Private Bank. He explained to Business Insider the huge disparities between the customer bases in the United States and China.

The U.S. has seen strong consumer spending, aided by pandemic stimulus checks and also unemployment benefits. This is in contrast to China, where policymakers have been more cautious. They are focusing on export growth over domestic consumption.

Consumer Spending Is Highest in the U.S.

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Despite high prices and consistently high inflation rates, consumer spending remains high. In September 2023, the U.S. government reported that consumer spending increased by 0.4%.

However, experts anticipate this spending will not continue in the following months. This is because many people are no longer eating out, traveling, or going to entertainment places.