The China trade shock of the 1990s and 2000s is widely blamed for hollowing out the US manufacturing sector. But anyone who thinks that unwinding trade with China will not result in price increases and significant political backlash is in for a rude awakening.
While rules-based monetary policy thrived when globalization put downward pressure on inflation, the COVID-19 pandemic has revived central bankers’ long-dormant preference for inflationary policies. This shift may help central banks maintain their independence, but it also increases the likelihood of another surge of price growth.
Until recently, any suggestion of fiscal prudence was quickly dismissed as “austerity” by economists on the left. But with higher interest rates fast becoming the new normal, the idea that any economic problem can be solved with more government borrowing has become untenable.
Germany’s ongoing economic weakness suggests that the European Union’s long-term economic slump is not likely to end anytime soon. But with traditional laggards like Italy and France showing signs of recovery, and Central and East European members performing well, the bloc’s economic outlook could still take a turn for the better.
Buoyed by the artificial-intelligence boom, the US stock market is breaking records with no apparent end in sight. But given the significant challenges and uncertainties facing the American economy regardless of who occupies the White House in 2025, there is little reason to believe that the current rally can last.
Despite analysts’ increasingly optimistic forecasts for the coming year, the risks to global growth are still tilted to the downside. In fact, recent developments in China, Europe, and the United States suggest that the world economy’s biggest challenges may lie ahead.
As geopolitical tensions spike and interest rates remain elevated, 2024 is poised to be yet another tumultuous year for the world economy. This is especially true for emerging markets, which managed to avert a crisis in 2023 but could struggle to do so again if global growth fails to meet expectations.
The long-standing economic consensus that interest rates would remain low indefinitely, making debt cost-free, is no longer tenable. Even if inflation declines, soaring debt levels, deglobalization, and populist pressures will keep rates higher for the next decade than they were in the decade following the 2008 financial crisis.
Contrary to many analysts’ expectations, emerging markets have not spiraled into a debt crisis. This can be partly attributed to central banks’ decision to reject populist policy proposals in favor of a modern iteration of macroeconomic orthodoxy.
After having maintained near-zero interest rates for decades, the Japanese central bank may be forced to hike rates if inflation remains persistently high. But Japan’s enormous government debt and vulnerable banking sector mean that doing so could trigger a systemic financial crisis.
While some economists may argue that secular stagnation is to blame for China’s economic slowdown, concerns about sustained slower growth are overblown. If the country falls into a recession, it would constitute the next turn of the debt supercycle that began in the US in 2008 and moved to Europe in 2010.
After 17 months of intense fighting, the costs of rebuilding Ukraine will most likely be far higher than previously expected. European countries, which have repeatedly pledged to support Ukraine but have contributed relatively little to its defense thus far, must coordinate and facilitate this effort.
For decades, rich countries have urged developing countries to shift away from fossil fuels while failing to heed their own advice or offer meaningful funding. Kenyan President William Ruto’s recent call to establish a new “global green bank” is the sort of thoughtful proposal that developed countries must seriously consider.
The latest last-minute deal to raise the US debt limit does not solve the underlying political problem. On the contrary, with the country on track for a Biden-Trump rematch next year – a contest that Trump just might win – the truce is likely to be short-lived.
Despite its commitment to curbing China’s geopolitical ambitions, the Biden administration has done little to counter the country’s expanding economic footprint in South America. Given the region’s crucial role in the fight against climate change, the US can no longer afford to take its southern neighbors for granted.
The bipartisan push to ban TikTok in the US reflects both the growing distrust of China and lawmakers’ limited understanding of the tech world.
While the sanctions regime imposed on Russia has dented its economy, it is far less severe than those imposed on North Korea and Iran, which included penalties on third-party countries. Imposing secondary sanctions could tighten the screws on Putin, but also accelerate deglobalization.
It is hard to reconcile the jubilant mood of many business leaders with the uncertainty caused by the war in Ukraine.
With inflation on the rise and the era of ultra-low interest rates over, financial markets will face a huge stress test in 2023.
With a storyline full of celebrities, politicians, sex, and drugs, the future looks bright for producers of feature films and documentaries about the astonishing collapse of FTX.
Gone are the days when China could point to soaring real-estate prices and rising incomes to justify endless new construction.
Some earlier big run-ups in the US currency’s value, including in the mid-1980s and the early 2000s, were eventually followed by sharp declines.
The outcome of next year's world championship chess match will likely hinge as much on technological superiority as on individual human ingenuity.
The longstanding argument that go-go Keynesian fiscal stimulus is the answer to every imaginable economic shock has been exposed as bankrupt.
In the longer term, oil and gas prices look set to rise unless investment picks up sharply, which seems unlikely given current policy guidance.
Absent a crisis, stiffer regulation of cryptocurrencies could take many decades, especially given that major players are pouring huge sums into lobbying.
The US Federal Reserve certainly bears its share of responsibility for the great inflation of the 2020s.
With luck, the risk of a synchronized global downturn will recede by late 2022.
Many academic studies suggest that sanctions on China or a break in Sino-American economic ties probably would have a smaller quantitative impact than one might think, at least over the medium to long term. But that is a theory better left untested.
One hopes that Russian President Vladimir Putin will soon realize that his Ukraine invasion has been a spectacular miscalculation.
It is not difficult to fathom why the United States’ central bank is especially resistant to any quantum change in the existing financial system.
Much like the US Federal Reserve, the International Monetary Fund has subtly expanded its own remit even as it has failed to adjust to changing economic circumstances. And, as with the Fed, higher inflation could deliver a blow to the IMF's reputation – and to the economies the Fund is meant to help.
To reappoint US Federal Reserve Chair Jerome Powell, President Joe Biden had to resist strong pressure from the left wing of his party for a shakeup. By choosing continuity, Biden accomplished several things at once.
Limiting global warming to 1.5º Celsius remains just about attainable, but the path to this target is formidable. The United Nations climate summit now underway in Glasgow will indicate whether political efforts to achieve this goal are likely to heat up as fast as scientists tell us the planet is.
The Chinese government may yet succeed in insulating the broader market from the financial crisis at real estate giant Evergrande. But the larger challenge is to rebalance an economy that has depended for far too long on the bloated housing market for jobs and growth.
The progressive climate agenda in the United States has blinders on when it comes to the global nature of the carbon problem, and the imperative of finding ways to secure the buy-in of emerging-market and developing economies, which are by far the main source of carbon-emission growth.
Many economists seem to view inflation as a purely technocratic problem, and most central bankers would like to believe that.
The view that central-bank interest-rate policy can and should be the main driving force behind greater income equality is stupefyingly naive, no matter how often it is stated.
Most of Latin America is still far from the horrific conditions prevailing in Venezuela, where output has fallen by a staggering 75% since 2013.
Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators simply cannot sit on their hands forever.
Addressing within-country inequality may be the political imperative of the moment.
Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable.
In the near term, markets should not be too worried about a possible spike in demand driving up inflation and interest rates, causing asset prices to fall across the board. But longer-term inflation risks are skewed much more to the upside than many investors and policymakers seem to realize.
Heightened global economic risks mean that many poorer countries could take years to return to their pre-pandemic growth trajectories. And if higher inflation leads the US Federal Reserve to raise rates somewhat sooner than it currently plans, emerging markets will be hit particularly hard.
Global carbon pricing is an essential part of any long-term solution to the climate crisis. But advanced economies also need to provide the developing world with highly concessional financing and technical expertise to help it decarbonize – all guided by a World Carbon Bank.
Super-fast computer programs and massive databases have had a profound impact on professional chess in recent years. But, despite the threat of cheating, the game is currently in remarkable creative and economic health – not least because it is fantastically suited to the online world.
Macroeconomists broadly agree that productive infrastructure spending is welcome after a deep recession, especially when interest rates are at record lows. But in advanced economies, any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens.
Core dollar exchange rates have so far been surprisingly stable during the pandemic, most likely because major central banks’ policy interest rates are effectively frozen at or near zero. But although the current stasis could last awhile, it will not last forever.
The best explanation for why stock markets remain so bullish despite a massive recession is that major publicly traded companies have not borne the brunt of the pandemic's economic fallout. But having been spared by the virus, they could soon find themselves squarely in the sights of a populist backlash.
Policymakers’ most important task is to try to reduce the massive lingering uncertainty regarding COVID-19 while continuing to provide emergency relief to the hardest-hit individuals and economic sectors. But the insecurity fueled by the pandemic is likely to weigh on the global economy long after the worst is in the past.
