Under pressure from Donald Trump’s tariffs, China might be tempted to try to stimulate aggregate demand using short-term measures, much as it did after the 2008 global economic crisis. A better strategy, however, would be to focus on structural reforms.
NEW YORK – This year marks a decade since the global financial crisis erupted. For the United States, 2018 is very different from 2008. The economy has gone from the brink of collapse to the brink of overheating, thanks to a massive tax cut enacted when growth was already robust. The attitude toward China has also changed dramatically. Recognition that cooperation with China was necessary to manage global demand has given way to protectionism and hostility.
Yet, for China, 2018 feels similar to 2008 in an important way: negative shocks originating in the United States pose a significant threat to its economic growth. In 2008, the shock was a decline in demand for its exports, owing to the collapse of Lehman Brothers and the ensuing global financial crisis. Today, it is the trade war initiated by US President Donald Trump’s administration.
The risks China faces are not entirely outside its control. The situation could be made worse if the country repeats the policy responses of 2008 – namely, relying exclusively on massive fiscal and monetary stimulus to prop up demand.
NEW YORK – This year marks a decade since the global financial crisis erupted. For the United States, 2018 is very different from 2008. The economy has gone from the brink of collapse to the brink of overheating, thanks to a massive tax cut enacted when growth was already robust. The attitude toward China has also changed dramatically. Recognition that cooperation with China was necessary to manage global demand has given way to protectionism and hostility.
Yet, for China, 2018 feels similar to 2008 in an important way: negative shocks originating in the United States pose a significant threat to its economic growth. In 2008, the shock was a decline in demand for its exports, owing to the collapse of Lehman Brothers and the ensuing global financial crisis. Today, it is the trade war initiated by US President Donald Trump’s administration.
The risks China faces are not entirely outside its control. The situation could be made worse if the country repeats the policy responses of 2008 – namely, relying exclusively on massive fiscal and monetary stimulus to prop up demand.