THE ANATOMY OF THE COMING RECESSION
T here are three negative supply shocks that could trigger a global recession by 2020. All of them reflect political factors affecting international relations, two involve China, and the United States is at the center of each. Moreover, none of them is amenable to the traditional tools of countercyclical macroeconomic policy. The first potential shock stems from the Sino-American trade and currency war, which escalated earlier this month when U.S. President Donald Trump’s administration threatened additional tariffs on Chinese
exports, and formally labeled China a currency manipulator. The second concerns the slow-brewing cold war between the U.S. and China over technology. In a rivalry that has all the hallmarks of a “Thucydides Trap,” China and America are vying for dominance over the industries of the future: artificial intelligence (AI), robotics, 5G, and so forth. The U.S. has placed the Chinese telecom giant Huawei on an “entity list” reserved for foreign companies deemed to pose a national-security threat. And although Huawei has received temporary exemptions allowing it to continue using
American Consequences
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