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How should foreigners want the trade war between the United States and China to end? They should want to lose them.
Admittedly, the approach of Donald Trump is much worse than the intellectually inconsistent: it is deadly for any cooperative world order. Some people think that the collapse of such “globalism” is even desirable. In my opinion, it is stupid to imagine that a world managed by predatory “great powers” would be greater than that we have. However, while Trump's protectionism has to lose, Chinese mercantilism should not win, because it also creates substantial global difficulties.
To understand the problems with which the global economy is faced, it helps from the subject of “global imbalances”, which was a lot discussed in the period of global financial crises and the 2007-2015 euro zone. In the years that followed, these imbalances have become smaller, but the overall image has not changed. Like the last of the IMF Global economic prospects Notes: China and the nations of European creditors (notably Germany) carried out persistent surpluses, while the United States has run compensated deficits. Consequently, the American net investment position was less than 24% of world production in 2024. Since the United States manages trade and current account deficits and current accounts and has a comparative advantage in servicesIt also performs large deficits in manufacturers.
So, what, passionate free marketing would ask? Indeed, even a free marketing either passing might note, for a good reason, that the United States has had the chance to live beyond its means for decades. This does not need to be a problem: no one, after all, will be able to force the United States to reimburse its responsibilities. He also has means, both elegant and not so elegant, failing that. Inflation, damping, financial repression and mass bankruptcy of companies all come to mind.
However, we can see at least three large holes in this rather complacent vision of important and persistent global imbalances. The first is that they have become politically harmful – so harmful, in fact, that they helped make Trump elected president, twice. The second is that, on the excess side of the big book are interventions with a negative sum designed to move the global balance of economic powers. Although international relations do not only concern economic power, the latter is certainly a crucial part.
The third is that the counterpart of external deficits tends to be unduly sustainable national loans. Combined with financial fragility, the latter can lead to enormous financial crises, as he did between 2007 and 2015. Sectoral savings and investment sales reveal indicators of this last challenge. Foreigners have been putting a surplus of substantial savings with the United States for decades. US companies have also been in balance or surplus since the early 2000s, while American households have been surplus since 2008. Since these sectoral sales must add to zero, the national counterpart of American current account deficits has been chronic budgetary deficits.
If real interest rates had been high, budget deficits could have conducted chronic external deficits. But the opposite was true: real interest rates have been low or very low. The Keynesian hypothesis seems correct: the influx of net foreign savings, shown in the surpluses of the capital account (and the deficits of the current account) made the major budget deficits necessary, because the domestic demand in the United States would have been chronically inadequate.
China is not the only actor on the other side of the great world book. But it is the most important. Michael Pettis In my opinion, in my opinion, is correct that the global economy cannot easily adapt to a huge economy in which household consumption represents 39% of GDP and savings (and therefore investment) as a result. What is also clear is that the latter also helped to conduct what the Rhodium group is a success Made in China 2025 policy. Inevitably, existing industrial powers are afraid of this Chinese manufacturing mastodon.
It brings us back to last week question: Who will win the trade war between the United States and China? I argued that China would do it, in part because the United States went so unworthy of confidence and partly because China has the possibility of expanding domestic demand and thus compensating for American demand. Matthew Klein answers, in his excellent soupage The overtaking, That China has long had this option but has failed to use it. My answer is that China must now do it and therefore choose to expand demand rather than accept an enormous inner crisis. We will see.
The result of the American-Chinese trade war and the possible evolution of Trump prices are immediate questions. But the wider problems considered should not be ignored. Commercial policy should not be deemed in isolation. Like those who founded the post-war negotiation system, notably Keynes itself, knew it, its success also depends on the world macroeconomic adjustment, and therefore the functioning of the international monetary system.
In the first act of the post-war period, the United States organized enormous surpluses of current accounts, but recycled them in loans. In the second act, until 1971, American surpluses were eroded. This led to the end of the dollar ankle and generalized floors sperm Inflation targeting, at least among high -income countries. This system worked quite well before the rapid rise of China. With this, the era during which the United States could act as a borrower and spending of the last resort, tested in the 1980s by Japan and Germany, became politically and economically impracticable.
Trump's unpredictability and concentration for bilateral transactions are indeed stupid. But the former economic order led by the United States is now not sustainable. The United States will no longer serve as a balancer as a last resort. The world – especially China and Europe – must think again.
