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Could There be a Trade War Between China and the West?

As the U.S trade deficit becomes increasingly politicized in the face of high unemployment and a global contraction in demand, there is an increasing likelihood of trade tensions with net surplus countries, especially China.

by Michael Pettis

published by

BBC World Service

on February 8, 2010

Source: BBC World Service

Concerns are growing that the current slowdown in global trade will lead to a damaging trade war between China and Western countries. When Western unemployment was low, there was less concern about growing trade deficits in the United States and Europe. With high unemployment, the issue of trade deficits has become more politicized. Countries that are running large trade deficits are increasingly eager to bring those deficits down.

This has countries running large trade surpluses, such as China, concerned. China's economic strength relies in no small part on its ability to produce goods for sale abroad. As consumer demand drops, exporting countries must contend for larger shares of a smaller global market.

"A number of countries are trying to increase their share of global demand in order to justify their domestic manufacturing," explains Michael Pettis. "Especially the trade surplus countries, that have relied very heavily on foreign demand. China is the largest trade surplus country in history, as a share of global GDP."

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