South China Morning Post
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President Donald Trump speaks during a meeting with Chinese Vice Premier Liu He, right, as other US officials look on, at the White House in Washington on February 22. With the deadline for China-US trade talks having been delayed, the US side has alternated between optimism and stating that tough negotiations remain. Photo: TNS
Opinion
David Brown
David Brown

The US and China must end their trade war so the world can work together to restore economic order

  • From out-of-control US deficits to Europe’s sluggish growth and China’s over-reliance on exports, the world has problems it will take cooperation to address, and the trade war is a big distraction
David Brown
David Brown
Why you can trust SCMP

Enough’s enough. It’s time to bury the hatchet and put trade hostilities to rest. China and the US have too much in common to risk further damage to their national economic health.

It is time to settle their differences over trade amicably and get on with the business of restoring order to the global economy. They owe it to themselves and the rest of the world, or else we could be staring down the twin gun barrels of a global trade recession and another financial crash. 

China and the US have been playing with fire for too long and both sides risk getting their fingers burnt unless trade tensions are defused very quickly. Global trade growth is slowing sharply, with the row backfiring badly on both economies. US export growth has slowed while China’s latest trade data shows dollar-denominated exports in February falling 20.7 per cent from a year ago. It is hurting growth, hitting jobs and harming global financial confidence.
It simply inflames a situation that the International Monetary Fund and Organisation for Economic Cooperation and Development have warned about for years. Growing trade imbalances have posed a major threat to global stability for decades and resolving it will require a lot more than a token trade deal between China and the US in the coming weeks.

A long-lasting pact which has real meaning is one thing, but the bigger challenge is that the major economies still need to rebalance macroeconomic policies to ensure sustainable growth in future.

Source: New View Economics
China has already committed to rebalancing economic growth, away from its long-term dependence on export-led expansion to growth based on domestic demand regeneration. Improved tax incentives, deficit spending on key infrastructure projects, stimulating structural reforms, boosting consumer confidence and opening up the economy to foreign investment and imports should be cornerstones of the new policy renaissance in China. Critically, domestic growth can flourish at the same time that China is still making a bigger net contribution to global growth.
The US has a reputation as the world’s single biggest growth driver but is now crying out for a major rebalancing of policy priorities. President Donald Trump did a massive favour for growth in the last two years by cutting taxes but it was the worst possible move for taming America’s burgeoning government and trade deficits. These are at unsustainable levels and pose a major threat to global financial stability in the long run. The US is spending too much, with the excess demand leaking abroad into imports, a bigger trade deficit and a mountainous pile of US debt.
Low inflation is no cause to celebrate – we need a global policy push

Tightening fiscal policy will have to wait until Trump’s term of office is over in 2020 but it cannot go on forever. Tighter US fiscal policy, a more expansive-leaning Federal Reserve and a weaker dollar could provide more of a stabilising US backdrop but it will leave a demand gap in the global economy that other major players will need to compensate for.

Leading trade surplus nations like China, Germany and Japan can all play much bigger roles in the global reflation process, with fiscal and monetary policies aimed at promoting faster domestic growth with increased import demand. As soon as the US commits to more balanced and sustainable fiscal, monetary and currency policies, other nations will need to step in and take up the slack.

Low inflation is no cause to celebrate – we need a global policy push

While Trump obsesses over China, Europe definitely needs to provide a bigger contribution to global stimulus. Germany is falling behind the curve on growth impetus and needs to loosen fiscal policy, stimulate consumer spending and open up import demand. Japan has no other alternative but to keep policy super loose all round, considering that domestic growth remains in the doldrums.

Trump might have done his best to kill off multilateralism, but a world working together to promote free trade, debt relief for the third world and better economic cooperation can still work wonders.

Trade protection and a global slowdown can be stopped but it is up to nations cooperating in a spirit of mutual harmony, rather than a mindset of mutually assured destruction, which can help heal the world’s wounds.

David Brown is the chief executive of New View Economics

This article appeared in the South China Morning Post print edition as: End trade war and let the world work to restore economic order
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