January 19, 2019

If the World Economy Is Looking So Great, Why Are Global Policymakers So Gloomy?

For now, this remains more a theoretical risk than a cause of major disruption to economic expansion.

The Trump administration has threatened a withdrawal from the North American Free Trade Agreement, a steep tariff on steel and aluminum imports, and the intention to tax $50 billion (or maybe $150 billion) of Chinese imports. But it has then backed away, entering Nafta renegotiation, granting exceptions to the steel and aluminum tariffs to many countries, and delaying tariffs on Chinese imports.

Essentially the Trump administration pattern so far has been to pair belligerent language with comparatively restrained action. Trading partners have worked to find resolutions rather than let a full-scale trade war erupt. There is a tentative deal to renegotiate the United States’ trade agreement with South Korea, for example, and Nafta negotiations are continuing.

A World of Financial Imbalances

Global policymakers are worried about more than conflict over trade. They also see an emerging series of financial imbalances and risks that could cause, or worsen, the next downturn.

For years, for example, some countries — Germany, Japan and China prominent among them — have persistently run current account surpluses, meaning they export more than they import and essentially export capital to the rest of the world. Others, including the United States and Britain, have run persistent current account deficits.

Over time, these patterns can create vulnerability to financial shocks; they helped fuel both the 2008 global financial crisis and the 2010 eurozone crisis. And the I.M.F. projects that they will worsen in the next couple of years, despite steady economic growth.

For example, Germany’s current account surplus is set to rise from 8 percent of G.D.P. in 2017 to 8.2 percent in 2018 and 2019, according to the World Economic Outlook. The United States’ current account deficit is forecast to rise to 3 percent of G.D.P. from 2.4 percent.

Article source: https://www.nytimes.com/2018/04/19/upshot/world-economy-trump-worries-imf-trade-debt.html?partner=rss&emc=rss

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