Impact of the Chinese Economy on the U.S. Economy in 2020

In the first quarter of 2020, the People’s Republic of China recorded its first contraction in gross domestic product (GDP) since official records began in 1992. The National Bureau of Statistics of China reported a year-over-year GDP decline of 6.8% for the quarter.

However, bolstered by its efforts to contain the COVID-19 pandemic and reopen its factories, China experienced a GDP rebound, with the government reporting a 3.2% GDP increase in the second quarter of 2020. This was followed by a 4.9% GDP increase in the third quarter and a 6.5% GDP increase in the fourth quarter, along with a 2.3% GDP increase for all of 2020.

What impact did China’s swift ability to restart its economic engines have on the U.S. economy and the global economy? To answer these questions, you need to first assess the economic position of China within the world economy.

The Size of China’s Economy

The International Monetary Fund (IMF) predicted China would be the only major economy to grow in 2020, with projected real GDP growth of about 1.9% for the year. This was in stark contrast to the U.S. economy, which was expected to shrink by 4.3% in 2020. The IMF expected European nations to post negative growth numbers in 2020 as well, with the United Kingdom estimated to contract by 9.8%, Germany by 6%, and France by 9.8%.

How did the IMF’s predictions turn out? China’s real GDP growth was 2.2% for 2020, compared with -2.2% for the United States. As for European nations and their real GDP, France shrank by 7.6%, Germany by 4.1%, and the U.K. by 10.3%.

The sheer size of China’s economy had a lot to do with its ability to regain positive momentum. China, the most populous country in the world, has the second-largest economy, ranked below the U.S. with a GDP of $17.79 trillion in 2023, the most recent data available. However, this high GDP did not necessarily indicate the wealth of the country. The country’s GDP per capita was only $24,569 as of 2023 compared to the U.S., which had a per capita GDP of $82,769.

Over the decades, many global manufacturing companies have located their manufacturing units in China, attracted by the nation’s low labor costs and cheap supply materials. This allowed companies to produce goods cheaply, and it explains why many of the products we use in our daily lives are made in China.

Relationship With the U.S. Economy

China is the third-largest trading partner (the first and second being Canada and Mexico, respectively) of the United States, with $582.4 billion in total goods traded in 2024. Of that amount, U.S. export goods to China accounted for $143.5 billion and U.S. import goods from China were $438.9 billion, bringing the U.S. trade deficit with China to $295.4 billion.

This deficit is financed partly by capital flows from China. China holds more U.S. Treasury securities than any other foreign country except Japan. According to the Treasury, China owns $759 billion in U.S. debt securities as of December 2024.

All of these statistics show the importance of the Chinese economy and why any developments in China, negative or positive, can influence the world’s largest economy, the United States.

The Chinese Slowdown

Starting in 2010, China’s economic growth rate began a decade of decline. The GDP growth rate dropped from 9.6% in 2011 to 7.4% in 2014 (see graph below). The rate continued its decline to 6% in 2019 and 2.2% in 2020. The 2020 GDP growth was impacted by the coronavirus pandemic.

The trend reversed in 2021, as China’s GDP grew 8.4%. It declined again in 2022, growing only 3%, before resurging in 2023 (the most recent data available), growing 5.2%.

Economists have raised concerns that a slowdown in the Chinese economy like that of 2010–20 would have negative impacts on the markets that are closely related to this economy, such as the United States.

China’s Silver Lining in 2020

China’s role as “the world’s factory” was a key factor in its ability to quickly rebound in 2020. The nation is well-known for its abundance of lower-wage workers, a strong network of suppliers, lower tax rates that keep the cost of production low, competitive currency practices, and government support that reduces regulatory hurdles.

While the rest of the world struggled to regain its economic footing, China’s ability to reopen its factories and post impressive GDP numbers in the second through fourth quarters of 2020 proved that the nation’s economy was still growing.

If anything, the COVID-19 pandemic cemented China’s importance in the global supply chain. Much of China’s 2020 growth was attributed to its factories meeting the world’s demand for personal protective equipment (PPE), medical equipment, electronics (such as laptops), and other items that were in short supply as the rest of the world shuttered its factories while complying with mandatory stay-at-home orders.

The Bottom Line

China, with its giant economy, has a huge influence on world economies. In 2020, the nation proved its resilience and was able to reopen its factories relatively early in the year, supplying the U.S. and other global economies with much-needed exports.

However, one of the biggest long-term risks to China’s economy could come in the form of economic decoupling. Tensions between the United States and China have escalated over a number of issues, including Hong Kong, the prolonged trade war, and increased tech rivalry. An economic decoupling could mean a reduction or severance of ties between the world’s two largest economies. China, for its part, has taken steps to reduce its dependence on the U.S. economy, building partnerships with other nations through its One Belt One Road (OBOR) initiatives.