Trade war can seriously derail China economic development, says Mohamed El-Erian
- China could slip into middle income trap if trade war persists
- By ending trade war, China can regain economic momentum, says Mohamed El-Erian
China should make concessions to reach a permanent trade deal with the US during the current 90-day ceasefire because it could seriously derail its economic development if it fails, said the chief economic adviser at Allianz Group, Europe’s largest insurer.
“The benefit of defusing the trade tensions is that you reduce the risk of falling into the middle income trap,” Mohamed El-Erian told a press briefing in Hong Kong. “My expectation is that something material will occur within the 90-day time period.”
The middle income trap is a concept first put forward by the World Bank in 2006 to describe a situation in which a rapidly emerging economy’s growth rate stagnates and the country is unable to generate further economic momentum.
El-Erian highlighted the fates of economies like Argentina and Brazil, which have both experienced sustained financial crises and social unrest. China has held off such crises to date.
Resetting the US-China trade relationship has been a cornerstone of the Trump administration’s foreign policy. President Donald Trump believes that the trade deficits the US runs with many of its partners was a sign of weakness in the US economy.