In today’s post we discuss how China’s economy impacts your household.
Spoiler alert: it may not be as bad as the media portray.
China’s Economy & Impact on Your Household
China is the world’s second largest economy after the United States.
Recently, the media have been painting China’s economy as if it’s circling the drain.
Truth: In reality, we have limited access to China’s economic data due to its communist system and reporting methods. Consequently, many countries gather fragmented information to gain a more comprehensive understanding rather than relying solely on official Chinese figures.
Why all the media hoopla?
China’s exports dropped 8.8% in August year-over-year and imports dropped 7.3% (Source Reuters®).
Given China’s size, when their economy slows down, there’s a ripple effect around the world.
Still, China’s slowing economy isn’t as striking as the media portray it.
In general, China’s economic slowdown impacts U.S. households in several ways: it increases supply chain pressure, making it more difficult to acquire certain products such as clothing, electronics and furniture; and it leads to higher prices due to supply shortages.
Nevertheless, there are facts missing from the media’s narrative.
The media often downplay the upside.
Specifically, 75% of the U.S. GDP is produced in the states. We’re extremely fortunate to produce the majority of our goods and services.
In simple terms, the U.S. Gross Domestic Product (GDP) measures the total value of goods and services produced within the U.S. during a specific period, typically a year or a quarter. It serves as a reflection of the size and health of the U.S. economy.
Another upside includes increased reshoring; specifically, bringing manufacturing back to the U.S.
According to RBC Capital Markets, “83% of manufacturers surveyed in the 2021 State of North America Manufacturing report noted that they are likely to reshore their production lines. As more and more companies begin to bring their industries home, new factory hubs, manufacturing zones and subsequent residential construction sites are likely to be in high demand.”
The World’s Largest Economy
Deep Data Dive: U.S. Imports & Exports
For an in-depth look at U.S. import and export activity, check out these two resources:
Bureau of Industry and Security reports: In 2022, 7.5% of total U.S. exports of $2.1 trillion to the world were exported to China, and 16.5% of total U.S. imports of $3.2 trillion were imported from China.
The Observatory of Economic Complexity (OEC) explains how countries make money. View the latest U.S. trends.
Your Investment Portfolio
The media often leaves us feeling like there’s a cloud over us.
Gone are the days of Walter Cronkite, aka the most trusted man in America, who was well known for his calm and unbiased news reporting.
While we’re not broadcasting journalists, we are your financial anchor, here to provide you clear facts and perspectives for when you need to make critical financial decisions.
Importantly, we’ve constructed your portfolio to help withstand economic uncertainty; specifically, via a diversified asset management approach consisting of different asset classes, becoming more conservative as you move through pre- and post-retirement phases. In general, if one asset class performs poorly due to economic uncertainty, other asset classes may perform better, helping to offset potential losses.
News vs. Money & Psychology
When you’re listening to financial news, keep this in mind:
According to financial behavioral analysts, the emotional impact of a 5% loss in your portfolio is twice as powerful as the joy we feel from a 5% gain. It’s like the difference between losing $100 and finding $100 unexpectedly. The loss stings more than the gain brings pleasure, even though the amount is the same. In the world of finance, this behavior is called loss aversion bias.
Many media outlets are counting on this financial phenomena to increase ratings. Said differently, financial uncertainty creates clicks, likes, shares, views, etc.
What’s rarely reported by the media is the following hard fact:
When your portfolio declines, it’s a temporary decrease in value—not a loss.
“And that’s the way it is.” – Walter Cronkite
Before You Go
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