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US Faces Host of Economic Troubles as Growth Slows in Europe, China

America faring better than other large economies, but has multiple shocks coming
Leo Timm
Leo Timm covers China-related news, culture, and history. Follow him on Twitter at @kunlunpeaks
Published: September 28, 2023
US President Joe Biden addresses a UAW picket line at a General Motors Service Parts Operations plant in Belleville, Michigan, on September 26, 2023. Some 5,600 members of the UAW walked out of 38 US parts and distribution centers at General Motors and Stellantis at noon September 22, 2023, adding to last week's dramatic worker walkout. According to the White House, Biden is the first sitting president to join a picket line. (Image: JIM WATSON/AFP via Getty Images)

Having experienced a rebound after the end of pandemic measures in 2022, the U.S. economy looks to be a better position than the world’s two other preeminent economic entities, the European Union and China, both of which are struggling to maintain growth and stabilize their currencies.

However, the American economy could be in for a tough time towards the end of this year as strikes threaten the auto industry, oil prices rise, student loan debt payments resume, and the government remains in shutdown.

Citing economists at Goldman Sachs and EY-Parthenon, a Sept. 26 piece by the Wall Street Journal (WSJ) notes that the final quarter of 2023 will see sharply less GDP growth than the previous months — about 1 percent in Q4 as compared with some 3 percent in Q3.

That’s despite strong job growth, low unemployment figures, and good consumer spending in the U.S., which is in an enviable position compared with its main geopolitical and economic competitor — China — currently facing 20 percent unemployment, deflation, and possibly the collapse of its real estate bubble.

Business not as usual

Lockdowns and supply chain disruptions associated with the novel coronavirus pandemic led to severe economic downturns worldwide. Extravagant stimulus spending resulted in rapidly rising inflation, with the trend only made worse by the Russo-Ukrainian war, which broke out in February 2022 and caused a spike in oil and gas prices, as well as costs of food.

Moreover, the war is not likely to end any time soon, as Ukraine’s counteroffensive has made little progress against well-prepared Russian defenses in the occupied south of the country. Russia similarly would be hard-pressed to attempt any major advances given the difficulties of taking territory in a conflict where drones have massively increased the accuracy of artillery and air support — and in which neither side has the demographics to sacrifice their soldiers’ lives in careless assaults.

Europe’s economy has contracted in the third quarter of 2023, according to a Sept. 22 WSJ article analyzing the continent’s situation. The Hamburg Commerical Bank estimated that the EU is seeing a 1.6 decline in GDP this year.

“The French economy has helped drive growth in the eurozone in the face of German stagnation, but it showed the deepest drop in activity during September,” the WSJ noted.

The UK was also not in a good way, according to surveys of purchasing managers carried out by S&P Global, WSJ reported. If not counting the COVID-19 pandemic itself, the country has in the last few months seen its greatest decline in economic activity since 2009, and economists at JP Morgan believe that the stagnation will only persist through the end of 2023.

China’s economy, long considered robust due to its strong industrial base, massive workforce, and “authoritarian advantage” under the CCP, has weakened to the point that even optimistic partners are warning about the risks of putting money into the People’s Republic.

An annual survey by the American Chamber of Commerce in Shanghai found that just 52 percent of 325 members polled were optimistic about their five-year China business outlook — the lowest level of optimism since the AmCham Shanghai Annual China Business Report was published in 1999.

The report also found that tensions between major concerns was a concern for many companies, with Sino-U.S. tensions being chosen as the top business challenge by 60 percent of the 325 respondents.

The PRC not only did not experience a post-COVID recovery, but continues to see deflation as consumers have proven reluctant to spend money, home sales slow precipitously, and revenues from business and manufacturing decline across the board. Countless small and medium sized enterprises, suffering from the aftermath of “zero-COVID” and other regulations, have shut down.

Young Chinese, despite being in short supply due to China’s rapidly shrinking demographics, find it so hard to find stable employment that graduating from university is commonly described as “out of work right out of school.”

Export-oriented manufacturing, likewise, is being moved to other countries; Mexico, not China, is now America’s largest trading partner. And in the worsening geopolitical environment, the U.S. has restricted sales of high-tech components to China, further hampering its industrial competitiveness.

Coming storm for America

Though still going strong by comparison, the United States is by no means out of the woods when it comes to future economic prospects.

In weighing the various troubles facing the U.S. economy, Gregory Daco, chief economist at EY-Parthenon, told the WSJ that the “quadruple threat” of the United Auto Workers strike targeting all three of America’s traditional car manufacturers, the government shutdown, resumed student loan debt payments, and high oil prices “could disrupt economic activity” and hamper efforts as post-pandemic recovery.

High prices of gas and the tens of billions of dollars Americans will have to spend on repaying their student debts will further eat away at consumer spending power, and hence sales.

In its own analysis of conditions in the U.S., Swiss Re Institute estimates that the real growth rate of the American economy will be 2.3 percent in 2023, and fall to just 0.9 percent in 2024. Both Swiss Re and the experts cited by the WSJ article believe that there is little chance of a recession materializing this year; however, Swiss Re in its report “continues to expect five consecutive quarters of below-potential GDP growth.”

Meanwhile, though Swiss Re predicts that the Federal Reserve will lower interest rates to around 4.375 percent next year, it will not offset the cooling in business caused by the post-pandemic hikes.

Speaking at a press conference on Sept. 27, Jerome Powell, who chairs the Fed, cited the “collection of risks” noted by the WSJ and others as being a threat to what he believes is otherwise “an economy that appears to have significant momentum.”

Meanwhile, if consumer confidence remains poor in the medium term, and as the European and Chinese economies continue to stagnant, the globalized economy developed since the turn of the 21st century could continue to unravel.

Geopolitical writer Peter Zeihan, who is bearish on China, described how even as American firms try to move manufacturing back to the U.S., the process is fraught with lengthy delays in the delivery of key industrial equipment, sometimes dragging on for years.

“The pace of the industrial expansion and reshoring trend really is huge,” Zeihan said in a Sept. 20 YouTube video as regards the shift of manufacturing back to the U.S. “The biggest risk in all of this is whether or not we have enough time to adapt.”