Michael Spence, a Nobel laureate in economics, is Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University. He is Senior Fellow at the Hoover Institution, Senior Adviser to General Atlantic, and Chairman of the firm’s Global Growth Institute. He serves on the Academic Committee at Luohan Academy, and chairs the Advisory Board of the Asia Global Institute. He was Chairman of the independent Commission on Growth and Development, an international body that from 2006-10 analyzed opportunities for global economic growth, and is the author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Macmillan Publishers, 2012).
BEIJING – The global economy is weakening, in no small measure because of a deep, widespread sense of uncertainty. And a major source of that uncertainty is the ongoing Sino-American “trade war.”
As Lawrence J. Lau of Stanford University has shown, the problem is not that tit-for-tat tariffs have had an especially large impact, except perhaps on particular US and Chinese economic sectors. Rather, the conflict has cast doubt on the future of global economic connectivity, which has led to lower investment and consumption in China and the United States, and among their respective trading partners.
Moreover, the Chinese state has expanded its role in the economy. State-owned enterprises are back in favor among young jobseekers and in the eyes of the largely state-owned banking sector, even though many SOEs really should be restructured rather than kept afloat. At the same time, many private-sector firms are finding credit scarce and very expensive, and bankruptcies appear to be on the rise. Periodic policy interventions to reverse these longstanding public-private asymmetries have proved insufficient.
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