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The news about China’s economy over the past few weeks has been daunting, to put it mildly.
The country’s growth has fallen from its usual brisk 8 percent annual pace to more like 3 percent. Real estate companies are imploding after a decade of overbuilding. And China’s citizens, frustrated by lengthy coronavirus lockdowns and losing confidence in the government, haven’t been able to consume their way out of the country’s pandemic-era malaise.
If the world’s second-largest economy is stumbling so badly, what does that mean for the biggest?
Short answer: At the moment, the implications for the United States are probably minor, given China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.
In a note published Thursday, Wells Fargo simulated a “hard landing” scenario for China in which output over the next three years would be 12.5 percent smaller than previous growth rates would achieve — similar to the impact of a slump from 1989 to 1991. Even under those conditions, the U.S. economy would shave only 0.1 percent off its inflation-adjusted growth in 2024, and 0.2 percent in 2025.
That could change, however, if China’s current shakiness deepens into a collapse that drags down an already slowing global economy.