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Macroscope
Opinion
David Brown
David Brown

Macroscope | Global economic slowdown is China’s opportunity to take the initiative in settling the trade war and easing tensions

  • China should set a new range for its currency and use the rest of its reflationary tools to reach its 2019 growth target
  • It should also lead the way in seeking reconciliation at a time when the trade war is hurting everyone

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Why you can trust SCMP
China Vice-Premier Liu He says goodbye to US Trade Representative Robert Lighthizer after trade talks between the two countries in Washington on May 10. The two countries’ representatives have displayed rapport in public and talks are ongoing but it appears that the two sides’ positions are hardening. Photo: EPA-EFE
David Brown

The global economy is heading for a hard landing and the jury’s out on how much more China needs to do to soften the blow. China is surrounded by economic black holes around the world and it will be hard for Beijing to resist the gravitational pull towards slower growth in the coming months.

China’s 6 to 6.5 per cent growth target is in serious jeopardy without more reflationary effort. It’s time to pull out the stops to resist being sucked into a deeper decline.

China’s biggest trade partner, the United States, is slowing down fast and it will be lucky to scrape by with little more than 1.5 per cent growth over the next year. A US recession is more than an outside bet unless the Federal Reserve gets into gear with extra stimulus.
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Europe is heading into recession as the region faces up to the threat of a no-deal Brexit shock. Germany is already halfway there. Japan is stuck in a seemingly never-ending downward deflationary spiral. The omens appear bleak with the trade war between the US and China taking no prisoners.

There is hope that the US and China may be heading back to the negotiating table, but chances are the markets are grasping at straws. Last Friday, White House economic adviser Larry Kudlow said the US wants “near term” results from the trade talks in September and October, but he cautioned the trade conflict could still take years to resolve.

China must resist being drawn into US President Donald Trump’s political games in the run-up to next year’s elections and needs to press ahead with its own plans to mitigate slowdown risks in the months ahead.

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