Michael Pettis
The sweeping tariffs announced by U.S. President Donald Trump on April 2, along with the subsequent postponements and retaliations, have unleashed an enormous amount of global uncertainty. Much of the world’s attention is on the chaotic, short-term consequences of these policies: wild stock market fluctuations, concerns about the U.S. bond market, fears of a recession, and speculation about how different countries will negotiate or react.
But whatever happens in the near term, this much is clear: Trump’s policies reflect a transformation of the global trade and capital regime that had already started. One way or another, a dramatic change of some kind was necessary to address imbalances in the global economy that have been decades in the making. Current trade tensions are the result of a disconnect between the needs of individual economies and the needs of the global system. Although the global system benefits from rising wages, which push up demand for producers everywhere, tensions arise when individual countries can grow more quickly by boosting their manufacturing sectors at the expense of wage growth—for example, by directly and indirectly suppressing growth in household income relative to growth in worker productivity. The result is a global trading system in which, to their collective detriment, countries compete by keeping wages down.
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