Jul 24, 2018 - World

China ramps up domestic spending to offset Trump's trade war

Erica Pandey, author of @Work

The Chinese yuan. Photo: VCG via Getty Images

The Chinese government is spending $199 billion on infrastructure to prop up domestic growth as the trade fight with the U.S. rages on, reports the South China Morning Post.

Why it matters: China is prepared to both retaliate and out-wait the U.S. in a trade war, and it has tools — like upping government spending — to blunt the effects of Trump's tariffs.

The big picture:

  • China has a narrow government deficit — about 2.6% of GDP — compared to the United States', which is estimated to reach 4.2% of GDP. As a result, the Chinese government can massage policies to promote domestic growth as the trade fight escalates.
  • Experts say China may also deliberately devalue the yuan to stave off trade war effects.
  • China is also cutting corporate taxes and increasing loans to businesses, CNN Money reports.

The bottom line: We're unlikely to see either side back down in the trade war any time soon.

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