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China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle
Forward Guidance
Impact of China's Trade Imbalances on Global Economies
China's trade practices significantly affect global economies, particularly the U.S. and Europe, which operate with smaller manufacturing shares and higher consumption rates. While it is popular to blame China for trade issues, many other countries, such as Japan, Germany, and South Korea, also export domestic demand deficiencies. The U.S. serves as the largest consumer of global trade surpluses, necessary for surplus countries to maintain their economic balance. Recent efforts by the U.S. to reduce its trade deficit could lead to drastic repercussions for global economies, particularly in Europe, as they would be forced to absorb the excess production that the U.S. currently absorbs. If the U.S. successfully caps its deficit, surplus countries will need to redirect their surpluses to larger economies like the EU, India, and Japan or face economic strain. This situation echoes historical trends where countries with weak domestic demand resorted to exporting unemployment, as highlighted by economist Joan Robinson. If the U.S. withdraws from its role as the global consumer, it risks creating significant imbalances that could lead to social and economic instability worldwide.
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