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Macroscope | Improved US-China relations must translate into global trade growth
- Trade must be high on the agenda for both countries as economic growth and the benefits of easy money grow steadily weaker
- Global growth prospects are in urgent need of a reboot, and renewed US-China dialogue could pave the way for changes
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The good news is that US-China relations are starting to thaw, so there might be an end in sight to the trade rift between the two countries. The problem is that it might be a long time before a workable deal is secured.
In the meantime, the world awaits a breakthrough which could give the global economy an opportunity for faster recovery after the Covid-19 pandemic while easing inflation pressures. Trade protectionism must end, punitive tariffs need to be unwound and world trade allowed the freedom to flow smoothly.
The rewards could be huge, with global growth boosted in the longer term, trade imbalances reduced, political tensions eased and financial stability more likely.
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There are tough challenges ahead, but at least both sides are talking. After the recent virtual meeting between US President Joe Biden and Chinese President Xi Jinping, hopes are high for improved relations on several fronts.
Trade must be near the top of the agenda, considering the slowdown in economic momentum in the United States and China in the last quarter. US economic growth sank to 2 per cent in the third quarter from 6.7 per cent in the second. Meanwhile, China’s growth rate eased to 4.9 per cent year on year in the third quarter, compared with 7.9 per cent in the previous three months.
The benefits of cheap and easy money won’t last forever, so policymakers in both countries may well be wondering whether the slowdown could become more entrenched and what can be done to reverse the trend. Faster world trade growth could be the answer.
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