China’s Economic Pain Threatens the Entire World Economy

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This past week the news emerged that vehicle sales throughout China declined by a painful three percent for 2018 in the Middle Kingdom. This represented the very first such drop in Chinese auto sales in approximately two decades. Worse still, analysts claim this is only a taste of what is yet to come in 2019 in China, per Chinese auto consultation company ZoZoGo.

It is a sobering reminder of why you can not simply trust the value of your investment and retirement portfolios to fickle stocks and bonds. This is all part of why gold makes sense in an IRA today. IRA-approved gold is your first, last, best, and ultimately only line of defense against the economic and geopolitical maelstroms breaking out and raging on across the world constantly anymore. Time to investigate the Gold IRA rules and regulations now before the financial storms become any worse. Don't say you were not warned.

U.S. Automakers in China Also Fear the Auto Sales Slowdown

To think that U.S. car makers will get away without any financial pain from the Chinese car market slowdown is to be ignorant of the state of the world's largest car buying markets. China has long outranked the American car market to become the biggest in the world. While car manufacturers sold an impressive 17 million vehicles in second largest car market the United States in 2018, they sold an amazing 28 million vehicles in mainland China in the same annual time period.

Now the one-two knockout combination of consumer fears and the Sino-American trade war have crushed auto sales in the country that auto makers could long safely rely on for continued, predictable growth in the business. ZoZoGo warns the worst is not yet over, with:

“Look for the market to fall another five percent in 2019 because consumer confidence remains shaky. There is simply too much uncertainty amidst a slowing economy, job security worries, and then there is the big cloud of angst about U.S.-China trade tensions.”

Add to this the now very real fears that the global economy certainly appears to be significantly slowing down, and you have a perfect trifecta storm as this graph below reveals:

Chart Courtesy of UPFINA

There can no longer be any reasonable doubt that the ongoing trade war is harming China economically more so than the United States for now. Yet in the spring, the tables may finally turn. China should be on the rebound by then (thanks in no small part to massive government funded stimulus programs brought to you courtesy of Beijing) even as the U.S. begins to slow down.

Bank of America Merill Lynch and its economists echoed these sentiments recently. They claimed that China's slowdown could begin to reverse over the next couple of months even as the U.S. economists have been predicting an inevitably slower second half of 2019. Growth rates should fall back below two percent according to many prediction models. This is also thanks to the effects of the tax cuts and resulting consumer spending increases from 2018 at last petering out.

Even as the worsening trade war grinds steadily on, U.S. trade negotiators have headed to China and there has been some positive noise emerging from these closed door discussions. The Bank of America Merrill Lynch economists opined in their research note:

“So far the trade war has had a much bigger impact on Chinese growth than U.S. growth. However, that could change by next spring. The U.S. has tried to minimize the blow back from its tariffs by avoiding consumer products and either avoiding or giving exemptions for products without easy substitutes. Looking ahead, the next moves would be much more painful.”

Much as the U.S. administration may not like to hear it, economists believe that China ultimately has a greater leverage position for battling the effects of the longer lasting trade war against its economy than does the U.S. This is because America risks suffering a drop in the all-important consumer and business confidence levels before long. This is especially more likely with Apple's recent sobering profit warning. BoAML put it this way in their research note:

“The impact of the trade war on U.S. confidence seems to be growing. Until recently, consumer, business, and investor confidence seemed to be Teflon coated when it came to policy uncertainty. The U.S. had a big offset to the trade war— a double dose of tax cuts and spending increases. Now, with the stimulus fading, confidence seems more sensitive to news that would have been ignored in the past.”

So far this has given the U.S. administration room to claim that China will have to blink first and be forced to negotiate. President Trump has shared his thoughts on where this is all headed, with:

“I think China wants to get it resolved. Their economy is not doing well. I think that gives them a great incentive to negotiate.”

U.S. Consumer Secretary Wilbur Ross went one further in his boast. He claimed that the tariffs on Chinese exports are making it hard for China to appease their own population and keep in check the pressures of rising social unrest. The warning from BoAML is sobering though.

They remind everyone that China possesses greater maneuverability in economic policy easing measure than the U.S. currently does. Just last week, China cut its banking reserve requirements. More measures will be anticipated in the near future. As Bank of America Merrill Lynch astutely noted:

“China is employing its full arsenal of stimulus tools— monetary and credit easing, a weaker currency, spending increases and tax cuts. Meanwhile the U.S. has limited room to loosen policy. Fiscal policy is trapped in gridlock and the government shutdown actually means a small fiscal tightening. The Fed can cut rates, but is reluctant to do so with the economy already beyond full employment. It also worries that a quick rate response creates moral hazard by anesthetizing the rest of Washington against its policy problem.”

U.S. Economic Strength Looks Fragile and Transitory

Cesar Rojas the Citigroup Global Economist warns that while the American economy is for the moment still strong, this will change in the near future. As American growth begins to weaker further down the road in 2019, China will be stabilizing and growing faster. This will give China the rising advantage in the conflict.

Another economist took his warnings a step further. Cribstone Strategic Macro founder Michael Harris warned that:

“If there is a recession and a crash, it is Trump's decision, because he has made a crucial mistake here of closing the government at the same time he hasn't resolved China.”

Consider Yourself Warned, Gold Is Your Last, Best Financial Safeguard

With the interdependent and -connected world trading order fast unraveling, you can not any longer count on stocks only going up, up, and away. Times have changed, and synchronized, global growth no longer seems possible. You need a new strategy to defend your retirement portfolio's value these days. IRA-approved precious metals will keep your money hedged even when the global economic picture increasingly looks bleaker.

Today is the day to look into the Top five gold coins for investors while you still can. You should also start working on that Gold IRA transfer versus rollover decision. Do not put it off any longer. The world economy can get a whole lot worse.

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David Crowder
W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.
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