The news: China’s economy slowed broadly in August, raising the stakes for the current round of trade negotiations with the US.

By the numbers: Consumption, investment, and industrial output all slipped last month, a troubling sign for both China’s economy and global growth.

• Retail sales increased 3.4% YoY in August, short of expectations for 3.9% growth. The deceleration from July’s 3.7% rise was a clear sign that more stimulus measures are needed to restore consumers’ willingness to spend.
• Industrial output growth slowed to 5.2% YoY from 5.7% in July, its lowest level in 12 months. While that could indicate early success for Beijing’s campaign to curb overproduction, combined with weaker consumption it casts doubt on China’s ability to hit its GDP growth target.

Our take: China’s H2 economic challenges strengthen the US position in trade negotiations. While Beijing has touted domestic consumption as a potential antidote to an extended trade war in the US, consumers’ current spending remains too weak to prop up China’s economy. At the same time, trade troubles with other partners—including the EU and now Mexico—are challenging China’s ability to lean on other markets to offset a drop in US exports.

These factors increase pressure on Beijing to roll out more stimulus support. Whether the government will do so is another question: It has so far resisted introducing broad-based initiatives to shore up the struggling property market and reduce unemployment, both of which continue to be a major drag on sentiment.

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