Martin Wolf The old global economic order is dead; who will win the trade war between the US and China? China
To understand the problems the world economy faces it helps to start from the topic of “global imbalances”, which was much discussed in the run-up to the global and Eurozone financial crises of 2007-2015.
Trump’s protectionism has to lose, Chinese mercantilism must not win, since it, too, creates substantial global difficulties.
Since the US runs trade and current account deficits and has a comparative advantage in services, it also runs large deficits in manufacturing.
US has been fortunate to live beyond its means for decades. That need not be a problem: nobody, after all, will be able to force the US to pay its liabilities back.
It (US) also has ways, both elegant and not so elegant, to default. Inflation, depreciation, financial repression and mass corporate bankruptcies all come to mind.
The counterpart of external deficits tends to be unsustainable domestic borrowing.
Combined with financial fragility, the latter can lead to huge financial crises, as it did between 2007 and 2015.
The domestic counterpart of US current account deficits has been chronic fiscal deficits.
The Keynesian hypothesis looks right: the inflow of net foreign savings, shown in capital account surpluses (and current account deficits) made big fiscal deficits necessary,
because domestic demand in the US would otherwise have been chronically inadequate.
Who will win the trade war between the US and China? China has the option of expanding domestic demand and so offsetting lost US demand.
Trump’s unpredictability and focus for bilateral deals are indeed foolish. But the old US-led economic order is now unsustainable.
The US will no longer serve as balancer of last resort.
Martin Wolf 6 May 2025
https://www.ft.com/content/49e38ee8-f37e-47da-8ee4-1631175d2224
The U.S. trade deficit ballooned 14% to a record $140.5 billion in March
(RE: Multiplicera med 12 för årssiffra.
1680 miljarder dollar.
Multiplicera med 10 för SEK.
16.800 miljarder, på ett år. We have a problem.)
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