Brace for a global recession unlike any other amid a world polarised by the US and China

The 2019 recession will be different, in a heavily leveraged global economy with already slowing trade – where normal policy tools may no longer work.

Post-recession, Asian nations in particular should expect to have to take sides as the US and China vie for ownership of the new global economic narrative

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Post-recession, the US and China are likely to trust each other less, forcing the economies around them to overhaul their supply chains and other economic structures in the new and polarised world reality. Photo: Xinhua

Published: 11:00pm, 9 Jun 2019Updated: 11:04pm, 9 Jun 2019

Global economic recession is no longer a threat but an inevitability. The question economists should be asking is not whether or when a recession will strike but rather what can be done once it does. Normal policy tools such as monetary easing and/or fiscal stimulus may be no more effective than pushing on the proverbial piece of string.

This time, it will be different — as optimists like to say when trying to convince themselves that crises cannot happen again; though not for the reasons they think. The 2019 recession will be different from the Great Recession a decade ago, and indeed, from any slump since the Great Depression of the 1930s.

The comparison with 1930 — when the US introduced its Smoot-Hawley tariffs and plunged the world into depression in the wake of the 1929 US stock market crash — is obvious, except, this time, world trade growth is already crumbling. Global trade growth is at its slowest in 10 years, according to the World Bank.

Trade crises tend to cut deeper into the heart of global economic activity than any of the post-war financial or debt crises did. The onset may be slower and less dramatic but the adverse effects last longer.

It is easy to forget that what caused global economic growth to stagnate for seven or eight years after the 2008 financial crisis was the secondary shock to trade. World trade only began to pick up again in 2016, to then have US President Donald Trump clobber it with tariffs.

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