Markets

China's economic slowdown amid US strength may cause it to strike a trade deal soon, Nomura says

Key Points
  • "I suspect the increasingly pronounced slowdown in China's economy, coupled with recent employment data pointing to continued strength in the US economy, are putting heavy pressure on China to settle sooner rather than later," says Richard Koo, chief economist of Nomura Research Institute.
  • China's economy grew by 6% in the third quarter, the slowest since the first quarter of 1992.
  • China's economic growth could fall below 6% in 2020, the International Monetary Fund predicted.
  • The U.S. economy has seen a rebound in recent months with jobs creation easily beating estimates.
President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019.
Kevin Lemarque | Reuters

It appears that the trade war is taking a bigger toll on China's economy than that of the U.S., and that may prompt the Chinese to surrender, according to Nomura.

"I suspect the increasingly pronounced slowdown in China's economy, coupled with recent employment data pointing to continued strength in the US economy, are putting heavy pressure on China to settle sooner rather than later," Richard Koo, chief economist of the Nomura Research Institute, said in a note Tuesday.

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Trump: If we don't make a deal with China, I'll raise tariffs higher

Trade tensions with the U.S., once China's largest trading partner, have significantly added to economic uncertainty over the past year and a half. Its economy grew by 6% in the third quarter, the slowest since the first quarter of 1992. The International Monetary Fund predicted China's economic growth could fall below 6% in 2020.

At the same time, the U.S. economy has seen a rebound in recent months. A gauge for U.S. services activities topped expectations for October, while the labor market remains solid as jobs creation easily beat estimates last month. Better-than-expected economic data have also pushed U.S. stocks to record highs this month.

The U.S. and China have agreed to work up a "phase one" trade deal in early October after rounds of tit-for-tat tariffs. However, trade negotiations seemed to have stalled after signs that the two sides were not on the same page on some core terms. China pushed for a rollback of the existing duties in place as part of the deal, which Trump said he had not approved.

Koo also predicted that the U.S. won't change its stance on China, even under a new president.

"Mr. Trump's hardline approach towards China is perhaps the only initiative of his that has the support of both parties, and the US appears highly unlikely to alter its policy unless China makes a significant change of course," Koo said.

WATCH: CIO expects US-China Phase 1 deal by end of year

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