U.S. and China: Anchors Away

Written by: Global Thought Leadership | November 02, 2018

Based on chart created by Brandywine Global. Source: Macrobond, via Brandywine Global (© 2018, Macrobond) which Brandywine Global believes to be accurate and reliable.   Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.



  • The U.S. and China arguably function as anchors for global growth, given the size and relative stability of their economies. Yet these two nations are trending in different directions, as evidenced by capital market volatility since Q2, the weakness across many emerging markets (EM) and the strength of the U.S. dollar.
  • Both countries continue to see strong growth, with nominal GDP rates[1] of close to 6% and 10% respectively. though global growth has slowed somewhat this year[2].
  • But the trajectory of U.S. growth has been upward since 2017, with nominal GDP at post-crisis highs. In contrast, China’s growth trajectory this year has been downward, with nominal GDP growth retreating slightly to below 10%.
  • Brandywine Global‘s Francis Scotland, Director of Global Macro Research, sees this divergence as a major driver of the dollar’s recent strength, the rise in U.S. Treasury yields and the decline in Chinese bond yields – and of the movements of the U.S. dollar price of the Chinese offshore yuan.
  • In EM economies, Scotland notes that this combination, in concert with higher oil prices, has proved overwhelming.
  • The backdrop of U.S. – China relations may be a part of the picture, according to Scotland: “The impact of the trade war on global growth is hard to calibrate, but it seems to have exaggerated the growth divide even more.”
  • That’s why policy changes in either country which affect their relative growth could be key components of the behavior of financial markets over the next year. According to Brandywine Global’s Scotland, “In our view, policy differences are the main drivers between America and China”.

All data Source: Bloomberg as of November 1, 2018, unless otherwise noted.


[1] Nominal GDP is defined as growth  in GDP before taking inflation into account. This can differ from inflation-adjusted GDP figures, which are often described as “real GDP”.

[2] Source: Brandywine Global, based on J.P. Morgan Global Composite PMI



Emerging markets (EM) are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.



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