How is China's economy affecting American businesses?

After a dynamic recovery at the beginning of the year, China's economic growth started to slow down in April-June. Exports, previously a constant engine of growth, are now struggling. Domestically, problems in the real estate market continue, dampening investment, and consumer spending is weakening as Chinese consumers become more cautious about jobs, income and economic prospects.

These negative trends are affecting economic growth forecasts. China's economy is expected to grow 5.0 percent in 2023 and 4.7 percent in 2024, well below pre-pandemic levels, which averaged 7.7 percent annually from 2010 to 2019.

China'. 's economy could grow even slower in a more negative scenario. Under Euromonitor International's China Slowdown scenario, which assumes a deeper downturn in the country's real estate market, declining asset prices, weak confidence in the financial system, currency devaluation and rising unemployment, China's real GDP growth could be reduced by 0.3-1.2 percent in 2024 and 2025 compared to the baseline scenario.

In the long term, China is unlikely to return to its pre-pandemic growth trajectory due to an aging population and associated structural demand challenges. However, there is scope for more sustainable growth unrelated to the construction boom.

The impact on U.S. companies

All''These trends will have a direct impact on U.S. companies with operations in China. The slowdown in demand will affect a wide range of industries, from consumer electronics to automotive and industrial machinery. As a result, U.S. companies are unlikely to experience slower revenue and profit growth in 2023 and 2024.

The slowdown in China's industrial production and problems in the real estate market will also directly affect U.S. exporters. For example, the U.S. is the fourth-largest supplier of machinery and equipment to China, with exports totaling $13.5 billion in 2022.

The impact of China's slowdown on the broad U.S. economy is unlikely to be significant, at least in the short term''Outlook. Euromonitor's China slowdown scenario predicts a 0.04-0.3 percent decline in U.S. GDP growth from the baseline between 2023 and 2025.

Decoupling of the U.S. and China

A prolonged slowdown in China's economy could escalate trade tensions between the US and China. There are concerns that a longer period of deflation and currency devaluation will make Chinese exports more competitive in U.S. and other foreign markets, which in turn will hurt local companies.

B'''In the short term, this is unlikely to cause major changes in trade, but longer-term risks remain, particularly for the US manufacturing sector as a result of increased competition from China. Growing trade imbalances could also escalate tensions between the U.S. and China and lead to the imposition of new trade tariffs by both sides.

The slowdown in China's economy could further accelerate the U.S. decoupling from China. According to Euromonitor's sustainability survey, 71 percent of companies in North America plan to improve supply chain resilience in the next five years, and slowing growth and demand in China could accelerate such efforts. Changes in supply chains and trade flows could, in turn, have an''favor countries such as India, Vietnam, Thailand and Mexico. These countries could be winners in the process of decoupling the U.S. and China.

Risks for U.S. companies

The geopolitical tensions could hurt the growth of U.S. companies as they increasingly have to comply with stricter laws and technical regulations both at home and in China. Technology and finance companies, as well as suppliers of critical components such as semiconductors and automotive batteries, are likely to be hit hardest by stricter industry regulations. These factors pose a particular threat to small and medium-sized companies, which typically have less financial,