Both Trump and Chinese President Xi Jinping know that it is in their countries’ interest to avoid a global crisis, so they have an incentive to find a compromise in the next few months. Yet both sides are still ratcheting up nationalist rhetoric and pursuing tit-for- tat measures. Trump and Xi each seem to think that his country’s long-term economic and national security may depend on his not blinking in the face of a new cold war. And if they each genuinely believe the other will blink first, the risk of a ruinous clash is high indeed. It is possible that Trump and Xi will meet for talks during the G-20 summit on June 28-29 in Osaka. But even if they do agree to restart negotiations, a comprehensive deal to settle their many points of contention would be a long way off. As the two sides drift further apart, the space for compromise is shrinking, and the risk of a global recession and crisis in an already fragile global economy is rising. © Project Syndicate Nouriel Roubini , a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton administration. He has worked for the International Monetary Fund, the U.S. Federal Reserve, and the World Bank. With the current tensions already denting business, consumer, and investor confidence and slowing global growth, further escalation would tip the world into a recession.
the zero bound they can go. And with bloated balance sheets from successive rounds of quantitative easing (QE), central banks would face similar constraints if they were to return to large-scale asset purchases. On the fiscal side, most advanced economies have even higher deficits and more public debt today than before the global financial crisis, leaving little room for stimulus spending. And, as Rosa and I argued last year, “financial-sector bailouts will be intolerable in countries with resurgent populist movements and near-insolvent governments.” Among the risks that could trigger a recession in 2020, the Sino-American trade and technology war deserves special attention. The conflict could escalate further in several ways. The Trump administration could decide to extend tariffs to the $300 billion worth of Chinese exports not yet affected. Or prohibiting Huawei and other Chinese firms from using U.S. components could trigger a full-scale process of de-globalization, as companies scramble to secure their supply chains. Were that to happen, China would have several options for retaliating against the U.S., such as by closing its market to U.S. multinationals like Apple. Under such a scenario, the shock to markets around the world would be sufficient to bring on a global crisis, regardless of what the major central banks do. With the current tensions already denting business, consumer, and investor confidence and slowing global growth, further escalation would tip the world into a recession. And, given the scale of private and public debt, another financial crisis would likely follow from that.
American Consequences
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