No need to panic over US-China trade war, says top economics scholar

The US-China trade war will have a “manageable” impact on the GDP of both nations, according to a scholar who was once a member of China’s top political advisory body.

Professor Lawrence Lau gave his expert opinion on how the US-China trade war would play out. Photo: Sarah Graham/FCC

Professor Lawrence Lau said that despite reporting its slowest growth since 1990 last year, China was still a strong economy and the maximum impact on it would be around a 1.1% drop. The impact on the US would be even smaller, he added, predicting a “less than 0.2%” drop.

“The first impacts [of the trade war] are mostly psychological,” Prof. Lau said at the January 29 club lunch.

The former Vice-Chancellor (President) of The Chinese University of Hong Kong explained that in terms of stock markets, Shenzhen performed badly as a result of the start of the trade war in January 2018, but all other markets remained stable. Similarly, China’s exchange rate – notably the Chinese Foreign Exchange Trade System Index (CFETS) – indicated that the RMB fell only 3% over the last year.

While the rates of growth of Chinese exports and imports fluctuate like those of all other economies, the rate of growth of China’s real GDP has also remained relatively stable, Prof. Lau said, primarily because it wasn’t dependent on outside influences.

Prof. Lau, a former member of the Department of Economics at Stanford University, predicted that by 2030, China’s real GDP would be “neck and neck” with America’s, but its GDP per capita would never catch up with the US.

Watch the full talk here.