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

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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.

Key Takeaways

  • The economies of the United States and China are intricately linked, due to the two nations sharing a large trading partnership of goods and services.
  • In 2020, China started the year with a historic GDP decline of 6.8% caused by the impact of the COVID-19 pandemic.
  • After reopening its factories, China’s growth rebounded dramatically; the International Monetary Fund (IMF) accurately predicted China would be the only major world economy to experience growth in 2020.
  • China’s economic growth in 2020 was attributed to its ability to meet the world’s demand for medical equipment, electronics, and other items needed during the pandemic.

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.

24%

The total of all U.S. bulk agricultural commodity exports that were sent to China in 2024. That narrowly made China the largest destination for such exports, which include corn, cotton, rice, sorghum, soybeans, and wheat.

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.

What Is the Status of U.S.-China Trade Relations?

On Feb. 1, 2025, President Donald Trump ordered 10% tariffs on China. The tariffs took effect three days later, when China retaliated with duties on the imports of some U.S. goods and an antitrust probe of Google.

What Form Does the Chinese Economy Take?

China has a unique socialist open-market economy, with both tight government control and free-market elements. As a manufacturing and export-driven economy, the Chinese currency forex rates also significantly impact money supply.

What Would Be One Possible U.S. Impact of a Slowdown in the Chinese Economy?

U.S. companies that generate an important portion of their revenues from China are likely to be negatively affected by lower domestic demand in China. This would be bad news for both shareholders and employees of such companies. When cost-cutting is necessary to remain profitable, layoffs are usually one of the first options to consider, which increases the unemployment rate.

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.

Article Sources
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  1. Reuters. “Coronavirus to Push China’s First-Quarter GDP Into First Decline on Record.”

  2. National Bureau of Statistics of China. “Economic Growth of the First Three Quarters Shifted from Negative to Positive.”

  3. National Bureau of Statistics of China. “Preliminary Accounting Results of GDP for the Fourth Quarter and the Whole Year of 2020.”

  4. International Monetary Fund. “People’s Republic of China.”

  5. International Monetary Fund. “World Economic Outlook: Real GDP Growth.” Set map year to 2020.

  6. The World Bank, World Bank Open Data. “GDP (Current U.S.$)—China, United States.”

  7. The World Bank, World Bank Open Data. “GDP Per Capita, PPP (Current International $)—China, United States.”

  8. Office of the U.S. Trade Representative. “The People’s Republic of China, China Trade Summary.”

  9. U.S. Department of the Treasury, Treasury International Capital (TIC) System Data. “Major Foreign Holders of Treasury Securities.”

  10. Reuters. “U.S. Grain, Oilseed Exports Surge in 2024 Without Boost from China.”

  11. The World Bank, World Bank Open Data. “GDP Growth (Annual %)—China.”

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