By Rishi Shah and Neel Shah
Chinese Growth: Good or Bad?
On the 3rd March China announced a growth target of 6.5%, representing a slowdown in growth from 2017’s growth of 6.9%. This represents the general trend of Chinese growth which has been declining for the last decade from over 14% in 2007. However, this slowdown may be a sign of Beijing’s focus on sustainable growth, especially following Premier Xi Jinping’s end to term limits for leadership (effectively making him Premier for life). This may mark a turning point in China’s growth, representing its changing status in aims of becoming a developed nation.
Despite this, China still has major concerns within its economy, including pollution, poverty, overproduction and local debt (with the latter growing by 7.5% in 2017 to $2,6 trillion according to the latest figures). Should China be investing money into these issues rather than growth? The IMF certainly believes China should focus on other efforts, especially the country’s debt which is now equal to 234% of annual output.
The Start of a Trade War?
On Thursday 8th March Trump announced his plan to introduce tariffs on steel (25%) and aluminium (10%) imports. The main rationale behind this is based on the fact that tariffs will encourage more purchase of US steel by making them appear cheaper and discourage foreign steel imports by making them seem more expensive. This will boost the manufacturing jobs in the steel industry, which is currently on the decline in the USA, and ensure longer-term benefits. However, many have argued that it will instead lead to a trade war. This is because nations like China who rely heavily on US imports will resort to lowering their prices to try and increase the incentive to buy their steel. The current raw material trading platform is a complex web of many different nations, and if they all retaliate in a similar way the prices will plummet. This will inadvertently cause even more widespread harm, such as job losses and industry decline in many nations. There are certain countries who have an exemption from this, namely Canada and Mexico. The United Kingdom exports 350,000 tonnes of steel a year to the USA, and therefore they are desperately trying to gain exemption, as is the story with many other large nations. However, in this area there is no clear answer as to whether it was the right decision, thus it will be interesting to see the long-term impact.
Asia-Pacific trade deal:
On Thursday the 8th March, following Trump’s plan on imposing tariffs on imports, 11 nations in Asia and the Pacific region signed a major trade deal, slashing trade tariffs between member nations. Known as the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), the deal involves the likes of Chile, Canada, Mexico, Australia and Japan who make up a market of nearly 500 million people and 13% of the global economy. In addition, the deal remains open, allowing it to admit new members in the future. This may be an option for the UK, following Brexit, according to Trade Secretary Liam Fox.
However, the trade deal faced a major hurdle when the USA (who was initially involved) pulled out in January, which would have increased the representation of the group to 40% of the global economy. Despite this, the trade deal is expected to boost the economies of Malaysia, Singapore, Brunei and Vietnam by 2% and all 6 other nations by up to 1%. This will be beneficial in developing all 11 nations, despite concerns from trade unions in the developed nations.
The Demise of Toys R Us.
Once a dream shop for many children, Toys R Us filed for administration on Wednesday 7th March. It will now begin the process of selling off its remaining stock and unfortunately, it also means the redundancy of all 3,200 staff from its 100 stores. Why? This firm was simply out-competed. With the likes of Amazon and Smyths dominating the toy market with a huge online presence, the demand for Toys R Us became non-existent. The parent company of Toys R Us shut down in the USA in September last year after having racked up $5 billion in debt. In recent years Amazon has been going from strength to strength, by reinvesting its profits into improving the firm. It has relentlessly evolved and now dominates the market. It just isn’t plausible to attempt to compete with Amazon, who have it all. Cheaper prices. Faster service. Convenience. This is seen in the latest accounts showing a £500,000 loss for Toys R Us in 2016, whereas a $2.8 billion profit for Amazon in the same period. The solution? The most viable solution for this problem is to reduce market dominance. In the near future, we need to regulate Amazon and ensure the same fate does not occur for other smaller firms. However, on the flip side, Amazon seems to be flying high, with their founder and chief executive Jeff Bezos being named Forbes’ richest billionaire in the world with a net worth of $128 billion.