Full-Blown Trade War Would Crash The Global Economy

Richard Duncan, writer and publisher at Macro Watch, warned on FS Insider that a full-blown trade war between the US and China would lead to a spike in inflation, interest rates, and, if pushed too far, a cratering of the global economy into another Great Depression. Sound sensational? Here’s what he had to say…

China Vulnerable, But It Can’t Back Down

President Trump appears to be sincere and determined in his intention to bring down the US-China trade deficit, and he’s probably willing to hold China’s feet to the fire to accomplish his goal.

China, however, really can’t afford to meet Trump’s demands, Duncan noted, and has to fight back, driving the likelihood that the trade war’s seriousness escalates further.

For one, China’s economy is already in a crisis to begin with, he said, and it is probably in the greatest economic bubble in history. This happened because China an export-led strategy since the 1980s, that saw total investment skyrocket, leading to tremendous excess capacity across every industry in China.

For example, Duncan noted, between 2010 and 2012, China produced more cement than the United States did during the entire 20th century. Now, however, the world can no longer soak up this excess production capacity, and China isn’t close to being able to make up the difference.

“One world is just not big enough to absorb everything that China can produce,” Duncan said. “It’s very difficult to see how China is going to grow as matters are now, even without a trade war with the U.S. If we bring in a trade war … (where) President Trump has demanded that China reduce its trade surplus with the U.S. by $200 billion a year. … This would be enough to tip China’s already fragile economy into a very severe economic downturn. There’s no possibility that China is going to agree. That’s what makes this crisis so serious.”

Potential Great Depression, Outright War