China Chock 2.0
China’s massive trade surplus is fueling a backlash.
Decades ago, U.S. leaders thought bringing China into the postwar economic institutions such as the IMF and World Trade Organization would make Beijing more market-oriented and the world more stable. They now think the opposite.
China has doubled down on an authoritarian, state-driven economic model that many in the West see as incompatible with their own.
Trump has prioritized reducing the trade deficit, especially with China, through tariffs, an approach the IMF has criticized.
The U.S. has been upset about the growth in China’s trade surplus since it joined the World Trade Organization in 2001, wiping out U.S. factory jobs in what became known as the China shock.
The IMF’s architects believed a breakdown in economic cooperation contributed to the Depression. Countries such as the U.S. that ran large trade surpluses felt no pressure to help those with deficits, like Britain.
By the 1970s, inflation and growing trade deficits caused fixed exchange rates to collapse.
Cross-border capital flows soared, enabling poor countries to borrow from western banks and investors. When they defaulted, the IMF had a new mission: helping them restructure their debts, usually on the condition of strict budget austerity.
IMF, a popular joke ran, stood for “It’s Mostly Fiscal.”
In a blog post last month, IMF staff investigated the U.S. deficit and Chinese surplus and found little connection.
The U.S. deficit reflected strong government and household spending, while China’s surplus resulted from slumping property markets and domestic confidence.
They “are mostly homegrown,” they wrote. In an implicit rebuke to the U.S., they wrote, “Worries that China’s external surpluses result from industrial policies reflect an incomplete view.”
IMF has long urged the U.S. to rein in its budget deficit, noting this contributes to its trade deficit, and the U.S. has just as long ignored it.
When the IMF speaks, it does so with an authority and credibility that no private analyst or individual country commands.
Greg Ip Wall Street Journal 24 October 2024
https://www.wsj.com/economy/global/the-u-s-and-imf-disagree-about-china-thats-a-problem-7ab5fca8
The Twin Deficits of the U.S.
https://englundmacro.blogspot.com/2024/10/a-us-fiscal-crisis-would-happen.html
Tillbaka till Wall Street och Stockholm 24 oktober 2024
https://englundmacro.blogspot.com/2024/10/wall-street-och-stockholm-24-oktober.html
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