While the United States seems to be struggling for economic direction, China isn’t slowing down.
In 2019, China is going to be overtaking the United States as the largest retail market in the world. This could have some substantial consequences, not just for the US but for the rest of the globe. Investors and business owners on a global scale may want to start looking towards China as the major player.
Historically, China has always had a significant amount of bargaining power in terms of cheap manufacturing. China has been producing cheap goods for many western countries, thereby propping up consumer-focused economies. In recent years, China has been moving away from cheap export manufacturing and towards direct retail as a way to increase revenue and reduce pollution within its country. A shift towards a larger retail boom may be exactly what the country needs to retain its economic power while pivoting to an economic base that is less harmful for its environment.
But that doesn’t mean everything is going well for China. Trade wars and tariffs have been taxing on the Chinese economy and the Chinese economy itself is slowing. Further, China is experiencing social and political issues related to its population, and wealth disparity is becoming significant as some of China is growing far faster than other regions. Wealth inequity and a shift in economic focus could result in a dangerous environment, though many analysts believe that the retail market in China is only going to continue to grow.
The United States is, at least partly, in an artificial recession. Though economic fundamentals are fairly strong, many consumers are pulling back on their spending due to fears that the economy may not continue doing well. This is a smart move for many consumers, but it artificially deflates spending numbers. Once customers feel more confident within the market, they will increase their spending, and the gap between China and the United States will be likely to start to narrow again.
In order for consumers to start spending more in the United States, they will need to feel more confident about both the stock market and the government. These are both issues that could resolve very quickly, and when resolved, could prompt an influx of spending that has been held off until that point. Thus, analysts cannot say for sure whether this retail lag is something that is the new status quo, or whether it may be something that could be more temporary.
That being said, most analysts at very least don’t expect to see substantial growth in the U.S. retail market in 2019: instead, it will be more of a period of recovery.
China hasn’t only eclipsed the United States due to changes in manufacturing. China has also been able to open its borders through the adoption of easy-to-use eCommerce platforms. Platforms like AliExpress, Alibaba, and Wish have become exceptionally popular in recent years. These sites are essentially a gateway to China and the equivalent of a Chinese Amazon. Consumers have found that they can purchase lower cost goods from anywhere in the world as long as they are willing to wait a few weeks.
China is the world leader in eCommerce sales, and over 30% of the country’s sales are now through the internet. In a compounding effect, if American consumers begin to feel the crunch of the current economic recession, they are actually more likely to begin purchasing through the internet and through lower cost countries like China. This could create a cyclical problem, in which manufacturing continues to be pushed overseas in pursuit of cheaper goods, and cheaper goods continue to be pursued as the economy weakens.
China’s victory over the United States in terms of the retail market is all but assured, but that doesn’t necessarily say anything about each country’s individual economy. China’s economy is going through substantial changes, dealing with economic and social issues that may eventually come to a head. Meanwhile, though the American economy is volatile right now, for the most part the fundamentals appear to be positive and the country may be able to weather the storm without a substantial long-term negative impact.
Regards,
Ethan Warrick
Editor
Wealth Authority
