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posted on 23 May 2016

Impact Of Chinese Slowdown On U.S. No Longer Negligible

from the Dallas Fed

-- this post authored by Alexander Chudik and Arthur Hinojosa

The impact of the Chinese economy on the U.S. has notably increased over the past two decades. Econometric modeling shows that the U.S. economy is more likely to directly and indirectly (through its trading partners) feel the impact of a negative shock to Chinese output.

China has become a systematically important economy in the world, accounting for about one-sixth of the global economy.1 It is, therefore, of no surprise that a slowdown of Chinese economic activity impacts many economies globally, including the U.S.

Reliably quantifying these effects is very challenging. Most notably, data quality and availability and changing relationships between economies over time complicate efforts. There are also some technical (but nevertheless important) problems arising from modeling the global economy that features many interdependent individual economies.

Using an econometric technique that examines interdependence of individual economies in the global economy, the Chinese slowdown and its impact on U.S. output growth can be assessed, as well as changes in the relationship since 2000.

Thus, it appears that the impact of slowdown in China on the U.S. economy has increased over time - at the turn of the century, slower growth in China would have had a small effect on the U.S. Today, reducing Chinese output growth by 1 percentage point shaves about 0.2 percentage points from U.S. output growth.

[click on image below to continue reading]

Source: http://dallasfed.org/assets/documents/research/eclett/2016/el1605.pdf

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