China’s growth is coming at the rest of the world’s expense

Pop quiz.

- Greg Ip

Many countries are frustrated by China's strategy. None has a solution.

(REUTERS)

Who has contributed more to the rest of the world’s growth this year: China or the United States?The answer is the U.S., and it isn’t even close. Even as the US. rolls out tariffs, its imports are up 10% so far this year from a year earlier. And as China moralizes against protectionism, its imports are down 3%, in dollar terms.

The U.S. figures might be an anomaly, reflecting front-running of tariffs. China’s are not. In the past five years, its export volumes have soared while imports have flatlined. China is swallowing up a growing share of the world's market for manufactured goods. This reveals an uncomfortable truth: Beijing is pursuing a “beggar thy neighbor” growth model at everyone else’s expense.

A recent report by economists at Goldman Sachs starkly laid this out. In the past, they wrote, 1% more out in China would raise the rest of the world’s output by 0.2% as it pulled in imports.

In their new forecast, the Goldman team has concluded that the relationship has turned negative. China's growth, they write, is being driven by its “leadership's determination and capability to further advance manufacturing competitiveness and boost exports.

This is positive for other countries insofar as cheaper Chinese goods boost purchasing power. But that benefit is more than offset by the hit to their manufacturing sectors from Chinese competition. The upshot is that Goldman sees China growing about 0.6 percentage point a year faster over the next few years, but that will reduce the rest of the world’s growth by 0.1 point a year.

China’s growth is still good for the Chinese people, and for some countries that sell inputs to its export machine. But Goldman projects it will generate growing headwinds for other industrial economies in Europe and East Asia, and for Mexico.

From positive to negative sum