Productive Forces Go Multipolar
Productive Forces Go Multipolar
The IMF reports that "The Global Economy is in a Sticky Spot", Goldman Sachs on Trump and China? , US and EU, not China, are turning inward, What’s “Growth” Got to Do with It?
IMF World Economy Report
The IMF reports "The Global Economy in a Sticky Spot"
Global growth is projected to be in line with the April 2024 World Economic Outlook (WEO) forecast, at 3.2 percent in 2024 and 3.3 percent in 2025. However, varied momentum in activity at the turn of the year has somewhat narrowed the output divergence across economies as cyclical factors wane and activity becomes better aligned with its potential. Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalization. Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates, in the context of escalating trade tensions and increased policy uncertainty. To manage these risks and preserve growth, the policy mix should be sequenced carefully to achieve price stability and replenish diminished buffers.
Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia, particularly in the technology sector. Relative to the April 2024 WEO, first quarter growth surprised on the upside in many countries, although downside surprises in Japan and the United States were notable. In the United States, after a sustained period of strong outperformance, a sharper-than-expected slowdown in growth reflected moderating consumption and a negative contribution from net trade. In Japan, the negative growth surprise stemmed from temporary supply disruptions linked to the shutdown of a major automobile plant in the first quarter. In contrast, shoots of economic recovery materialized in Europe, led by an improvement in services activity. In China, resurgent domestic consumption propelled the positive upside in the first quarter, aided by what looked to be a temporary surge in exports belatedly reconnecting with last year’s rise in global demand. These developments have narrowed the output divergences somewhat across economies, as cyclical factors wane and activity becomes better aligned with its potential.
Meanwhile, the momentum on global disinflation is slowing, signalling bumps along the path. This reflects different sectoral dynamics: the persistence of higher-than-average inflation in services prices, tempered to some extent by stronger disinflation in the prices of goods (Figure 1). Nominal wage growth remains brisk, above price inflation in some countries, partly reflecting the outcome of wage negotiations earlier this year and short-term inflation expectations that remain above target. The uptick in sequential inflation in the United States during the first quarter has delayed policy normalisation. This has put other advanced economies, such as the euro area and Canada, where underlying inflation is cooling more in line with expectations, ahead of the United States in the easing cycle. At the same time, a number of central banks in emerging market economies remain cautious in regard to cutting rates owing to external risks triggered by changes in interest rate differentials and associated depreciation of those economies’ currencies against the dollar.
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Goldman Sachs on Trump and China?
By Heng Sonia and Cheng Evelyn (CNBC)
BEIJING — If Donald Trump wins the U.S. presidential election, his plans for 60% tariffs on Chinese goods could be a “major downside growth risk” to China, according to Goldman Sachs.
Chances of Trump becoming the next president ticked higher after he survived an assassination attempt on Saturday and selected former critic JD Vance as his running mate two days later.
“Right now exports are a major bright spot in the Chinese economy, and I think the policymakers might want to be prepared,” Hui Shan, chief China economist at Goldman Sachs told CNBC’s “Squawk Box Asia” on Tuesday.
“We are seeing tariff narratives, not only in the U.S., but across other major trading partners of China’s,” she said. “So this is not going to be a sustainable driver of growth for China.”
The U.S. is China’s largest trading partner on a single-country basis, while the European Union has fallen behind Southeast Asia as China’s largest regional trading partner. Trump had raised duties on Chinese goods when president in 2018 and has threatened to increase them to 60% if reelected this fall.
The contribution of goods exports to real GDP growth in China for the second quarter of this year was the highest since the first quarter of 2022, when Covid restrictions limited domestic economic activity, according to Citi.
Meanwhile, Beijing’s push to develop high-end manufacturing has not yet been able to fully offset a real estate slump and lackluster consumption.
U.S. officials such as Treasury Secretary Janet Yellen have said that China’s policies to boost its industrial capability and technological self-reliance have led to U.S. job losses.
China the ‘biggest threat’?
In his first interview since he was selected as Trump’s running mate, Vance told Fox News that instead of the war in Ukraine, China was the “real issue” for the U.S. and posed the “biggest threat.”
The Biden campaign has criticized Trump’s pick, saying the choice was deliberately made “because Vance will do what Mike Pence wouldn’t on January 6: bend over backwards to enable Trump and his extreme MAGA agenda, even if it means breaking the law and no matter the harm to the American people.”
Supporters of Trump, who was president at that time, had stormed the U.S. Capitol in an attempt to overturn the 2020 presidential election results on January 6, 2021.
Asked about Vance’s comment, China’s Ministry of Foreign Affairs spokesperson Lin Jian said Tuesday at a daily press briefing, “We are always opposed to making China an issue in U.S. elections.”
Calls for stimulus
China’s economy grew by 4.7% in the second quarter compared to a year ago, missing economists’ expectations and bringing growth for the first half of the year to 5%. It prompted some calls for more stimulus if the world’s second-largest economy is to reach 5% growth for the full year.
The downside risk from potentially higher U.S. tariffs under Trump would primarily come from the greater uncertainty and tighter financial conditions, as well as pressure on the Chinese yuan, Goldman’s Shan said. She pointed out that tariffs in 2018 did not significantly dent China’s exports to the U.S.
More recent data, however, showed a slowdown in that trade. China’s exports to the U.S. rose by a modest 1.5% in the first half of the year.
“Policymakers need to think about domestic demand and focusing on something that is more persistent and sustainable for the growth outlook,” Shan told CNBC on Tuesday.
If 60% tariffs are imposed, “that’s pretty high and we think the implication for the macro economy is pretty significant,” she added.
So far, China has held back on stimulus measures. The country’s top leaders are meeting in Beijing this week for a highly anticipated Third Plenum, which is expected to determine long-term economic policy goals.
Citi analysts said Monday that weak retail sales and disappointing second-quarter growth won’t be enough to convince Beijing to increase support for the economy.
“Policymakers may tolerate short-term weakness amid the structural shift of the property sector,” the analysts said. “More concerns on trade and external relationships could also lead China to save the policy space for future.”
Citi forecasts 5.0% growth in real GDP growth for China this year.
China’s U.S. dollar-denominated exports grew by 3.6% in the first six months of the year after better-than-expected global demand for Chinese goods in recent months.
“Manufacturing and infrastructure investment may stay robust and exports should stay in decent [year-on-year] growth in [the third quarter], with possible front-loading of shipment orders in [the second half of the year] due to fears of higher tariffs,” Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank said in a note Tuesday.
She said Chinese authorities would likely be reluctant to roll out major stimulus in the next few months in order to save resources in the case of greater economic weakness and increased tariffs.
UBS forecasts 4.9% growth for China’s economy this year.
Trump the dealmaker
Not all analysts believe a possible Trump presidency will prove detrimental to China, though.
Ben Harburg of Corevalues Alpha told CNBC on July 4 that he believes China is more likely to have “positive” trade outcomes under a Trump presidency, given the ex-president’s “transactional nature.”
“He’s a dealmaker, and like any negotiator, he likes to kind of set the bar low, and kind of set his price low, and then work up from there,” the portfolio manager said on “Street Signs Asia.”
Speaking on foreign policy, Harburg pointed out that another Biden term would also mean continued tariffs, as well as “encroachment on Chinese domestic issues” — which would not significantly improve China’s economy, nor U.S.-China relations.
He said a Trump-China partnership would signify “a more binary potential for a positive outcome for China.”
Read more here.
US and EU, not China, are turning inward
By John Ross
Even the name of China's post-1978 reform and opening-up makes it clear that orientation toward the international economy and support for globalization are central to China's policies. This aligns with both China's national interests and those of the international economy.
Globalization, as developed after World War II, has been a tremendous success. From 1978 to 2022, world per capita GDP increased by 313 percent with an approximately equal rise in average living standards. China's per capita GDP went up by 3,033 percent. Other large Global South economies - India, Indonesia, Vietnam, Turkey, the entire ASEAN region and others - are also experiencing rapid growth.
Globalization saw history's greatest reduction in poverty. Since China launched reform and opening-up, 1.2 billion people have been lifted from World Bank globally defined poverty - led initially by over 800 million people in China, later by 240 million in India, 30 million in Vietnam and nearly 200 million in other countries.
These results demonstrate that the claims from some Western media outlets that "China is turning in on itself, seeking decoupling with the US and Europe," are absurd. When opening-up has brought China such success, turning inward would be equivalent to China taking out a gun and shooting itself in the foot. In line with the overwhelming majority of Global South countries, China wants to pursue globalization because of its success.
In contrast, the US and Europe, are turning inward - introducing increasing tariffs, international technology sanctions, and so on. Donald Trump, during his presidential campaign this year, has proposed a universal 10 percent tariff on all US imports.
The world is, therefore, developing a pattern in which China and other Global South economies grow rapidly and pursue globalization, while the US and Europe are relatively stagnant - the US growing an average of slightly over two percent a year and Europe one percent - and turning in on themselves.
The reason opening-up, or globalization, has been such a success in China and the Global South, while the US and Europe have failed to benefit in comparison, is that China has acted in line with the process of globalization, whereas the US and Europe have not.
Globalization vindicates the fundamental issues in economics that have been at its core since its founding work - Adam Smith's The Wealth of Nations. Smith demonstrated that a country that focuses solely on domestic development, relatively cut off from international trade, will not grow as rapidly as possible because it will inevitably develop huge inefficient economic sectors.
No country can be the most efficient at producing everything. If it attempts to be protectionist or self-contained, it wastes resources producing things which could be bought more cheaply from abroad. Consequently, to be most successful, an economy should specialize in producing those things in which it is most efficient and engage in the international division of labor by exchanging these for products other countries are more efficient at producing.
But there is nothing magical about national borders. International trade is one aspect of the advantages of specialization and division of labor. For a country to succeed in international trade, it has to pursue these other advantages. Specifically, it must make possible a developed domestic division of labor by investing in transport, communications and other infrastructure. It must allocate increasing resources to specialized research and development. It must have increasingly educated and skilled its workforce. It must look for the cheapest energy suppliers. It needs peaceful surroundings so that trade can develop, which means pursuing a foreign policy aimed at peaceful development. Domestic and international policies therefore have to be integrated.
This is what China in particular, but also other successful Global South economies, have done. China and ASEAN illustrate this graphically. These countries turned East Asia into an area of simultaneously intense international trade and investment and peace, thereby becoming the world's most rapidly growing economic region. They pursued domestic policies going with the grain of globalization.
The US and Europe took the opposite direction. US infrastructure became run down while it spent a huge proportion of its economy on the military and a grotesquely inefficient health system which costs a higher percentage of GDP and delivers a lower life expectancy than any other advanced economy. Europe, instead of pursuing peaceful development, allowed a provocative eastward NATO expansion which caused in Ukraine the largest war in the continent since 1945 and cut Western Europe off from its cheapest source of energy - Russia.
China and the Global South are successful in globalization because they pursue domestic and foreign policies in line with it. The US and Europe pursued policies against the logic of globalization and therefore suffered failures.
Hopefully, the US and Europe will change their policies. But until they do, it is China which is committed to globalisation and success, while they are turning inward.
Read more here.
NB: John Ross is a Senior Fellow at the Chongyang Institute for Financial Studies, Renmin University of China. opinion@globaltimes.com.cn
What’s “Growth” Got to Do with It?
An obsession with growth has generated massive inequality, undermined global economic stability, and weakened faith in democracy. Reversing these trends requires reining in the power of financial capital and managing global trade flows.
By Anne Pettifor; Edited by Stewart Patrick (Carnegie Endowment)
“Growth” is a term used by economists aiming for expanded economic activity: an increase in investment, employment, goods, and services. Conversely, it is used in a pejorative sense by environmental campaigners convinced that the endless expansion of economic activity in a world of finite resources is unsustainable. Its antonym, “degrowth,” is deployed instead, as in ‘The Future Is Degrowth: A Guide to a World beyond Capitalism’.
The use and evolution of “growth,” and its link to GDP, represent an important stage in the development of today’s system of global economic governance, based as it is on expectations of continuous “growth” facilitated by financial deregulation and capital mobility. Such “growth” in the context of financialized capitalism has led to ecological, social, and economic imbalances that threaten systemic failure.
The global liquidity flows that are a consequence of the financial system’s development are channeled in large part through nonbank financial institutions, also known as “shadow banks.” According to the Financial Stability Board, the total value of financial assets held by shadow banks in 2022 amounted to $217 trillion—more than double global income (GDP). By design, these institutions operate beyond the reach of regulatory democracy, even though they are tethered to the world’s central banks. Their activities impact economic policy making at the level of the state and pose systemic risks to the world economy.
To re-imagine global economic governance, we need to go back in time and assess the emergence of a system of global economic “nongovernance,” or “a nonsystem,” to quote José Antonio Ocampo. One that has led to the creation of the shadow banking system—and to destabilizing global financial and economic imbalances.
The Origins of “Growth” and Deregulation
The story starts with British economist John Maynard Keynes. Back in the 1930s, Keynes played a far greater role in the creation and construction of the UK’s (and ultimately the world’s) national accounts than is usually recognized. He did so not for the purpose of accounting, but to assess the existing level of income against thepotential level of income under certain policy conditions.
The value of what was then known as the “national income,” and which came to be defined by Simon Kuznets as “GDP,” was of minor interest to Keynes. As Geoff Tily explains, Keynes regarded the development of such accounting as a means to an end, not an end in its own right. “The national accounts were developed to support policy: to resolve the unemployment crisis of the Great Depression and to aid the deployment of national resources to their fullest possible extent for the conduct of the Second World War.” It is important to recognize, Tily continues, that
these theoretical and practical initiatives were aimed at the level of activity—at the increased and then full employment of resources and the full extent of national production—rather than the growth of activity. At this stage there was no notion on the part of policymakers that the level of activity might be encouraged to grow in any systematic or uniform way from year to year; the intention was achieving one-off level shifts. There can be no doubt that they were successful in this aim, and in sustaining these gains as the post-war golden age. (Emphasis added).
The “Growth” Revolution
This approach to national accounts changed radically in the late 1950s and early 1960s. In the United Kingdom, various professional economists—not least Sir Samuel Brittan, prominent columnist at the Financial Times—championed a new concept of continuous “growth” and defined themselves as “the growthmen.” It was an approach that changed the character of policy over the postwar age. Abandoning the aim of fixing the level of employment and output to sustainable levels, governments would set a systematic and improbable target: to chase growth. Nobody seems to have paused to consider whether growth—derived as the rate of change of a continuous function—was a meaningful or valid way to interpret changes in the size of economies over time, writes Tily.
In parallel, economic policy increasingly emphasized supply-side approaches, and hence a practical commitment to increased deregulation of economic activity. This is exemplified by the Council of the Organisation for Economic Co-operation and Development (OECD) adopting on September 12, 1961, a “Code for Liberalisation of Capital Movements.” This code, a framework for the progressive removal of barriers to cross-border capital flows, presumably was designed to enable what Tily calls the “ludicrous ambition of rapid and relentless growth, regardless of the extent of capacity in the labour market.”
In October 1961, the OECD held a conference on “Economic Growth and Investment in Education” at the Brookings Institution in Washington, DC. Encouraged by “classical” economists and discouraged by what (compared to today’s standards) were high yet sustainable levels of economic activity, the OECD proposed to turbo-charge the UK’s and other economies. At the time, the United Kingdom was in the happy position of providing full employment. In the words of then prime minister Harold Macmillan, Britons had “never had it so good.” On November 17, 1961, the OECD agreed to a 50 percent growth target for the UK for 1960 to 1970. The OECD target was equivalent to 4.1 percent per year. At the time, the British unemployment rate was 1.2 percent.
The result of this overly ambitious goal-setting was entirely predictable—an era of rampant inflation in the 1970s, followed by periods of financial excess and recurring crises. The blame for this inflation has since been laid squarely, and unfairly, on the shoulders of Keynes and on the labor movement. In fact, the attempt to achieve a wildly implausible growth target in conditions of near full employment led to the undoing of Keynes’s legacy: the “golden age” of capitalism from 1945 to 1971. Above all, it led to the dismantling of the system of managed global economic governance established at the Bretton Woods conference in 1944.
On the Question of Global Economic Governance
In the introduction to their book, Who Governs the Globe?, Deborah Avant, Martha Finnemore, and Susan Sell argue that the technical term “governance” obscures the role played by the world’s actual governors. Such abstractions absolve powerful individuals and institutions, including nonstate actors, of responsibility. Furthermore, as they explain
State-centric frameworks do not capture . . . the actual governance that goes on in the world today. Only a small fraction of global governance activity involves state representatives negotiating only with each other. . . . Globalization, deregulation, privatization and technological change have empowered non-state actors. Much of the literature on global governance equates it, implicitly or explicitly with the provision of global public goods. . . . [In fact,] governance outcomes are frequently disconnected from both the public and the good. Global inaction on climate change, access to HIV/AIDS and COVID vaccines are prominent examples. The 2007–09 global financial meltdown is another.
Nongovernance by states of the global economy has led to an international economic system that in effect is governed by private and not public (that is, democratic) authority—even as public taxpayer-backed institutions play a role in subsidizing, derisking, and bailing out private financial institutions.
Thanks to capital mobility, private actors in the international financial system exercise undue influence over policies vital to the economic stability of states, including exchange rates; interest rates; and global flows of investment, capital, and trade. This loss of public authority over both the global and domestic economies has led to disillusionment with democracy. Above all, it has generated obscene levels of inequality within and between states. This inequality, as Michael Pettis and Matthew C. Klein illustrate in their book, Trade Wars Are Class Wars, has helped create trade and capital account imbalances between states.
The global economic model that emerged from the growth revolution of the 1960s orients economies away from the domestic sphere, toward deregulated international capital markets and exports. The export orientation of economies like Germany and China boosts the income of the 1 percent: the owners and shareholders of export-oriented corporations. The incomes of the remaining 99 percent—the wages of workers in the domestic economy—are depressed. The British Resolution Foundation calculates that after fifteen years of stagnation, average earnings in the United Kingdom are £230 below the trend before the global financial crisis of 2007–2009. The Trades Union Congress argues that workers have endured the longest pay squeeze since the Napoleonic wars of the early nineteenth century.
However, the challenge is this: the top 1 percent of wealth holders do not spend all they earn. There are limits to the number of superyachts, private jets, and expansive estates they can buy. In contrast, the 99 percent spend all their income—using it to keep the roof over their heads, buy food, maintain their health, and send their children to university. However, as incomes have fallen in real terms, populations have come to lack the purchasing power needed to buy all that is produced by the export-oriented economy. Far from society’s purchasing power chasing too few goods and services, there are in aggregate terms too many goods and services chasing too little purchasing power. This imbalance has led to high levels of private debt, as the 99 percent borrow money for housing, healthcare, and food at the same time as firms (which cannot sell all they produce) borrow to compensate for falling sales.
The consequences are the reverse of most conventional economic commentary: overproduction, high levels of private debt, and falling incomes. Experience has shown that all of these elements lead to global financial crises.
What Is to Be Done?
Keynes’s policies for stable levels of production and employment required a global economic system that sustained, rather than opposed, domestic policymaking. As he prepared the British Treasury for the Bretton Woods conference, he explained to the House of Lords in 1944 that his “main task for the last twenty years” had been to ensure that
in [the] future, the external value of sterling shall conform to its internal value as set by our own domestic policies, and not the other way round. Secondly, we intend to retain control of our domestic rate of interest, so that we can keep it as low as suits our own purposes, without interference from the ebb and flow of international capital movements or flights of hot money. Thirdly, whilst we intend to prevent inflation at home, we will not accept deflation at the dictate of influences from outside. In other words, we abjure the instruments of bank rate and credit contraction operating through the increase of unemployment as a means of forcing our domestic economy into line with external factors. (Emphasis added.)
Keynes assumed that a monetary system that primarily served the interests of finance and wealth was opposed to stable levels of production and employment at home, and ultimately to balanced trading and financial relationships between states. Given today’s advanced scientific understanding of the earth’s finite resources, it is evident that a global economic system based on perfectly compounded interest and capital accumulation also stands in opposition to a stable climate and ecosystem. Belief in the viability and continuation of such a system is utopian. Given climate breakdown, societies facing extreme weather conditions and the resulting crop and energy failures will have to urgently transform the global “nonsystem” in order to stabilize domestic economies.
Global economic stability will require the restoration of balance to the international trading system and the reorientation of economies away from the global financial system and toward domestic economic interests, in particular those of the majority within economies: the 99 percent. In other words, the global economy needs to be restructured away from the interests of globalized wealth to the interests of workers in the domestic economy. We must again build an economy for work—especially the work of restoring balance to the ecosystem—and not wealth.
If faith in democracy is to be retained and if authoritarian forces are to be suppressed, societies must cooperate to help restore public, democratic, and accountable authority over the global and domestic economy. This transformation can be achieved only if the international community works in solidarity to restrain and manage global capital and trade flows. To do so will require a new form of global economic governance, based on international cooperation and coordination—and on balanced and sustainable economic activity.
One of the ways in which international solidarity can be fostered is by dismantling the financial system of unfettered capital mobility, based on a single, hegemonic reserve currency—a system as harmful to citizens of the hegemon as it is to many other states, as Michael Pettis argues. Fundamental to any move to “a world beyond capitalism” must be the abandonment of the system that turbo-charged globalisation in the 1960s: “growth” derived as the rate of change of a continuous function.
NB: Ann Pettifor is a political economist, author, and public speaker. Her latest book, TheCase for the Green New Deal, was published in hardback by Verso in 2019. Known for her work on sovereign debt and the international financial architecture, she led a campaign, Jubilee 2000, which resulted in the cancellation of approximately $100 billion of debt owed by the poorest countries. She is Director of PRIME (Policy Research in Macroeconomics) a network of economists that promote Keynes’s monetary theory and policies, and that focus on the role of the finance sector in the economy.