A trade war cannot give China and America what they need. A wake-up call is overdue
- David Brown says the two economies are so intertwined that when one falters, so, eventually, will the other. There is a way to address both their needs without coming to blows, and Beijing and Washington must put their minds to finding it
If they can work this one out, there should be light at the end of the tunnel and plenty of opportunity for markets to celebrate. Where there is a will, there should be a way.
It is far too glib to say the row is the product of two contrasting systems – unfettered capitalism in America and a centrally planned market economy in China – both rubbing each other up the wrong way. There is no historical inevitability that either side will implode. China and America are both highly developed economies and will adapt to change. The response to the 2008 crash is proof of that.
America needs China’s goods to release pent-up domestic demand that would otherwise add to inflationary pressure. China needs a healthy US economy and buoyant world trade to help it prosper. The sticking points are the US’ burgeoning budget and trade deficits and China’s over-reliance on external stimulus. There is a solution that helps meet both needs. The US must rebuild its domestic manufacturing base and China needs to focus on building up its home markets at the same time.
Critically, both countries need to come together to thrash out their respective problems amicably. A heated trade war is not the answer. Both countries need each other to consolidate strong sustainable growth for both economies, at neither nation’s expense. Talking is just the start and working together is the ultimate goal. A new US-China economic pact could seal the deal.
They might not like to admit it, but America and China’s fortunes are conjoined – each economy is dependent on the other as the world’s two greatest superpowers. Everyone benefits in the long run if they can coexist on a basis of mutual harmony and cooperation.
If China and America can manage to patch up their trade differences, the whole world moves forward. If they fail, we all fall into a black hole.
David Brown is the chief executive of New View Economics