Biden’s $ 1.9 billion stimulus set to bring global economy back to pre-Covid path

Mike Li, owner of a factory in China’s Guangdong Province, was transfixed by events thousands of miles away in Washington as President Joe Biden drafted an economic stimulus bill worth nearly $ 2 billion.

“Previously, we were a little worried about the pandemic overseas and how it would affect our orders,” said Li, whose factory makes sneakers that sell in Western markets. When the deal was sealed last week, WeChat groups in his industry “were bursting with enthusiasm” and “now there’s a good chance there will be more orders,” he added.

Whether through Chinese-made trainers, French wine, or auto parts from Mexico, the $ 1.9 tr Biden stimulus package – which will add 9% of national income to the purchasing power of the United States. – will not only help the United States recover from the coronavirus pandemic, it promises to propel the global economy back on its pre-pandemic path.

Erik Nielsen, chief economist of UniCredit, used a Danish proverb to describe the effect of the stimulus on the rest of the world: “When it rains on the priest, it drips on the clerk of the parish.

Karen Ward, chief European strategist at JPMorgan Asset Management, used a more modern metaphor: “When the United States has a party, the rest of the world gets an invitation.”

With stimulus checks of $ 1,400 per person arriving on doormats across the United States, the hope in China is for the party to come soon. While some Americans will spend their windfall on activities such as dining and entertainment, the fact that these are still restricted by the pandemic increases the likelihood that the money will be funneled into imported consumer products.

Allianz, the insurer, estimated that $ 360 billion of the $ 1.9 billion stimulus would be spent on imported goods, with China being the primary beneficiary, receiving around $ 60 billion.

“It’s pretty simple – it’s good for Chinese exports,” Ting Lu, chief China economist at Nomura, said of the coronavirus relief program. As Americans spend more time at home due to the coronavirus, “they’re buying televisions, laptops, even bicycles and refrigerators,” he explained.

Retail sales figures in the United States last week showed that checks paid as part of the latter part of former President Donald Trump’s stimulus increased monthly spending by 7.6% in January.

An employee working on the production line of a factory in China’s Jiangsu Province that makes surfboards © VCG via Getty Images

Translated into exports, the contrast in the early days of the pandemic is stark. Chinese exports have climbed more than 60 percent in January and February, compared to when the country was in lockdown a year earlier.

UBS this week raised its forecast for Chinese export growth in 2021 from 10% to 16%, citing Biden’s stimulus package and expectations of a “stronger recovery in the United States and around the world.”

With the US and Chinese economies likely to overheat, the rest of the world will follow, said Christian Keller, head of economic research at Barclays Investment Bank. With the world’s two largest economies accounting for 40% of global gross domestic product, “they should certainly also help stimulate the European economy, which has fallen behind in controlling Covid-19, and many other small open emerging economies. “, did he declare.

A rapid economic recovery, however, is rarely wild good news. Li, owner of the Guangdong sports shoe factory, pointed out the rising cost of raw materials and its difficulty in hiring staff. “There are too many orders and too few people,” he says.

Seasonally adjusted column chart (%) showing monthly growth in US retail sales

Phoebe Xie, who runs a plastics machinery company in China’s Wenzhou province, said she was concerned that 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 increase in the 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 increase in imports from China will also add to tensions in the United States over the country’s large bilateral trade imbalance. Chad Bown, senior researcher at the Peterson Institute, said U.S. exports to China were still well below the terms of the trade deal the two countries signed just over a year ago.

This could increase domestic pressure on Biden as the United States begins to suck in imports as a result of the stimulus package. The animosity that was evident when US Secretary of State Antony Blinken met his Chinese counterpart Yang Jiechi in Alaska on Friday shows the tensions that already overshadow the complex China-US relationship.

But there is a chance, according to Ward, that if internal U.S. sensitivities on trade can be contained, the stimulus could have even greater fallout by providing an example for the rest of the world on how best to recover. of the pandemic.

The OECD said in its latest economic outlook that the US stimulus will increase the global growth rate by 1 percentage point in 2021. If followed by other countries, it also offered a path to a much better recovery than after the 2008-09 global financial crisis. crisis, added the OECD.

“He’s potentially a role model for others,” Ward said. “Ambition alone sets an example for governments around the world.”

Additional reporting by Wang Xueqiao and Qianer Liu

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *