In economics, as in sport, competition is best managed by neutral referees, and not by the participants themselves.
The global economy sick before COVID
The failure of the two presidents to discuss what they could do to support the economic recovery is a big missed opportunity. There is a desperate need for bolder leadership that tackles short-term pressures and equally importantly longer-term structural fault lines.
The global economy looked decidedly unhealthy even before COVID-19 hit. The Brexit referendum in June 2016 and the election of a protectionist populist to the White House later in the year marked the beginning of a withdrawal into advanced economies.
The yield curve for U.S. Treasuries inverted in May 2019, generally a reasonably reliable harbinger of recession. The structural damage to the global economy inflicted by Britain’s exit from the European Union and the tariffs put in place under Donald Trump has been masked by the much greater immediate destruction caused by the pandemic. However, as the recovery gathers pace, it will become increasingly difficult to ignore it.
Although the Biden administration has more or less made peace, albeit on bad terms, with Europe lifting Trump-era tariffs but imposing quotas on the bloc’s steel and aluminum exports , she stuck to Trump’s belligerent stance on China.
It has maintained tariffs on a wide range of Chinese imports and continues to curb semiconductor exports in the name of national security, even though the likely long-term effect will simply be to boost semiconductor manufacturing. drivers elsewhere.
The effect of these two policies is to restrict the supply of consumer goods in the United States. This is not the only reason the United States has had the highest rate of inflation since George Bush Sr. was president. Compared to the Great Resignation of workers not wanting to return to low-paying jobs and logistical issues at American ports, this is an easily resolved issue, at least in theory.
The domestic policy of removing Trump tariffs could be tricky, but Biden could use his power to issue broad exemptions that would make tariffs a dead letter. Biden will also remember the political fate of the last two single-term presidents, both of whom presided over economic contractions resulting in part from tightening monetary policy in the face of inflationary pressures.
Insane trade restrictions
Inflationary pressures, in the United States and elsewhere in the global economy, may be only temporary, and for the most part central bankers choose not to overreact by rushing rate hikes and stifling economic recovery. .
But the task is made more difficult by senseless trade restrictions that have brought no tangible security or economic benefit to the countries that impose them. Since the dismantling of Corn Laws, economists know that removing barriers to international trade lowers prices; politicians, however, captured by vested interests, often have to be dragged into screaming and kicking to acknowledge it.
Even though he spoke only lightly about it at the summit, President Xi and his advisers are said to be well aware of the possible impact on the Chinese economy of tightening policies in the United States and other economies. Progress: among other things, a depreciation of the yuan that would make it more difficult for Chinese borrowers, like the ailing real estate giant Evergrande, to service their debts denominated in dollars.
If Trump had won last year’s election, he might have gloated at the idea of a hard landing for the Chinese economy. Bidens’ team is smart enough to know that a recession in China would also take the global economy out of breath.
The failure of the two presidents to come up with a strategy to pull the world out of the economic slump at their summit is perhaps hardly surprising, given the political constraints, but it is a major missed opportunity.
Australia, and the world in general, is best served by managed political and economic cooperation between Chinese and American leaders and intense business competition between their companies.
Instead, despite the small victories at the top, we appear to be in line for more political competition and business collusion. The tough heads of Asian capitals should not be fooled by political thugs offering managed business solutions in Washington or Beijing.
Tom Westland is Research Director in the Asian Bureau of Economic Research, Crawford School of Public Policy, Australian National University.
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