With the One Belt, One Road (OBOR) Initiative signaling China’s more activist, assertive regional economic development and security policies, the United States must develop a post-TPP strategy to engage with China and the Asia-Pacific region.
China hopes to use three strengths to make the Belt and Road Initiative a success: its large foreign exchange reserves, dominance in certain infrastructure fields, and unique forms of state backed project finance.
The U.S. trade deficit is not “caused” by Americans saving too little, nor will deficits disappear because Americans decide to spend less. Capital inflows determine U.S. savings rates.
Contrary to conventional thinking, a savings glut does not necessarily cause global savings to rise. A savings glut must result in an increase in productive investment, an increase in the debt burden, or an increase in unemployment.
While the EU and the United States have similar barriers to entry, EU investments in China have grown more rapidly.
The Trump administration’s obsession with trade deficits is misguided. Instead, the U.S. focus should be on strengthening investment relations with China.
As long as China has debt capacity, it can achieve any GDP growth rate Beijing requires, simply by allowing credit to expand. But debt levels are already high, and credit must expand at an accelerating pace to maintain growth. China is probably still a few years away from reaching its debt limits, but the more debt grows, the lower the country’s growth rate average will be over the long term.
Large, persistent trade deficits are no longer driven by mercantilist measures, but by policies that distort domestic savings rates by subsidizing production at the expense of households.
Bilateral trade balances alone aren’t an accurate reflection of a country’s economic strength.
After five years of consolidating power, Xi Jinping will emerge stronger than ever before. For this year at least, Xi will play the role of global leader, and the world will be better for it.