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Could a US Recession End the Trade War?

In recent economic downturns, the United States has been more willing than normal to cooperate with China to try to spur a global recovery. So, although the Sino-American trade dispute continues to escalate, a US recession later this year or in 2020 may help to ease bilateral tensions.

NEW YORK – The recent inversion of the yield curve in the United States – with the interest rate on ten-year US government bonds currently lower than that on short-term bonds – has raised fears of a possible US recession later this year or in 2020. Yet, paradoxically, a downturn in America could help to improve bilateral economic relations with China and cool the two countries’ escalating trade dispute.

Recent history offers grounds for such predictions. True, by reducing import demand, US recessions normally have a negative impact on economies with a high trade-to-GDP ratio, including China. However, in recent downturns, the US also has been more willing than normal to cooperate with China in order to try to spur recovery.

During the last major US recession in 2008-10, for example, China appeared to be the only major economy able and willing to boost global demand. Partly as a result of this, Sino-American ties improved, and the US even advocated giving China a greater voice in international bodies such as the International Monetary Fund and the G20.

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