The US will lose badly in the trade war with China and imperil the world economy

US imports into China are down much more dramatically than China’s exports to the US. China has also sold more Treasury bonds in March, putting pressure on the already large US fiscal deficit

By David Brown

May 20, 2019 "Information Clearing House" -    The world is taking leave of its senses and falling down the rabbit hole of a deepening global trade war, economic shocks and political instability. The post-war world order is breaking down, multilateralism is giving way to national self-interest and the political forums for peaceful debate are failing.

It’s time for someone to step forward and show stronger leadership before the world sinks back to where the 2008 financial crisis left off. Right now, the world is in self-harm mode and deeply vulnerable.

When two great superpowers go head to head, there’s normally serious injury felt on both sides. The world generally suffers greatly, too. But this is a trade war that the US will ultimately lose – and probably lose badly at that.

It’s not just the potential harm to America’s international status but damage that could also leave the US economy seriously exposed as well. America’s burgeoning trade and fiscal deficits underline deep deficiencies in the US economy, which ironically China can help to bridge. Critically, the US is more at risk than China right now.

Both economies are under the cosh from the trade war, but the US seems to be faring worse based on recent trade performance. According to China Customs data, the three-month moving average for US imports into China is down dramatically by 26 per cent year on year, compared with China’s exports to the US running 13 per cent below a year ago. The relative damage being wrought is roughly twice as bad for the US as it is for China.

America fails to produce much of the goods craved by domestic consumers and businesses and it’s
simplistic to think sanctions trade tariffs and import quotas can easily resurrect the manufacturing capacity the US has lost overseas thanks to decades of industrial decay and benign policy neglect. Imports from China help to satisfy the US demand gap inflated by decades of imprudent monetary and fiscal policies which have chronically ramped up domestic spending. Without the safety valve of import leakage, sharper capacity constraints and higher inflation would have followed.

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