The increase of US tariffs on goods imported from China in May and the Chinese response – higher tariffs on a further $60 billion of US exports to China – threaten a slowdown in the global economy. The IMF had already warned in April that trade growth would fall from 3.0% in 2018 to 2.6% this year. Leading economic indicators, which have been weak since mid-2018, point to increasing economic fragility and a heightened risk of recession amid rising signs of stress in emerging markets.
The failure of US-China trade talks has exposed deep divisions, stemming from differences in the two countries’ economic models. While there is no real ideological conflict along the lines of the Cold War, there are clear economic incompatibilities between US market capitalism and China’s state-sponsored model when it comes to international trade.
China’s extensive use of subsidies to support traditional industries and develop new ones, its insistence on technology transfer for market access and its poor record on intellectual property rights all represent, in US eyes, unfair, anti-competitive practices.
China has been drawn into a rules-based trading system in part because the costs of doing so were relatively low, as a result of weak enforcement, and the benefits of increased trade relatively high. Western nations, including the US until now, assumed or hoped that China’s adoption of rules-based international trading…