The U.S. has long overconsumed and underproduced, while China has overproduced and underconsumed, according to analysts at BCA Research.
But, in a note to clients, the strategists argued that this "decades-old imbalance" has been responsible for "chronic" account deficits in the U.S. and surpluses in China.
But the trend has peaked and is beginning to show signs of reversing, particularly as U.S. President Donald Trump pushes to bolster American production capabilities "at the expense of [...] consumption," they said.
"Trump’s trade, regulatory, and fiscal policies are beginning to change the composition of growth in the U.S. economy," the analysts said.
The White House’s sweeping tariffs on imported items, as an example, serve as both "an explicit tax" on consumption of foreign goods by "an implicit subsidy" to domestic producers, they said.
Meanwhile, they predicted that that the massive budget bill signed into law by Trump in July will reduce after-tax income for low-earning households, which have a higher propensity to consume. Conversely, higher-income Americans more keen to save will see their after-tax earnings increase, the analysts said.
Even Trump’s broad crackdown on immigration could have a dampening effect on consumption by removing shoppers from the U.S. economy, they claimed.
Although the latest indicators show that retail sales increased solidly in July, worries remain that a softening labor market and a possible tariff-fueled uptick in prices could weigh on consumer spending in the current quarter. The BCA analysts suggested real personal consumption expenditures are now following "a trajectory that is only seen during recessions."
"The almighty U.S. consumer is nowhere to be found in 2025," the analysts said.
As a result, they argue, other countries are being forced to adjust their own growth models, with China especially now confronting a world without a strong U.S. consumer able to absorb its excess production.
Beijing will likely need to stimulate household consumption domestically soon if it wants to avoid a "deep economic slowdown," they said, adding that a stronger Chinese yuan could "boost the purchasing power of households" in the country.
Against this backdrop, they upgraded their outlook for the Chinese yuan to "overweight" from "neutral." The analysts also recommended that investors remain "underweight cash, netural on equities and overweight fixed income."
Source :
https://www.investing.com/news/economy-news/uschina-trade-imbalances-peaking-as-policies-force-change-bca-research-says-4219694
