So, Why Did They Want It?

In his Washington Post column Robert Samuelson presents his thoughts on why trade war and debt make a deadly cocktail:

Here’s where the trade war and debt may intersect disastrously. Since 2003, global debt has soared. As a share of the world economy (gross domestic product), the increase went from 248% of GDP to 318%. In the first quarter of 2018 alone, global debt rose by a huge $8 trillion. The figures include all major countries and most types of debt: consumer, business and government.

But to service these debts requires rising incomes, while an expanding trade war threatens to squeeze incomes. The resort to more tariffs and trade restrictions will make it harder for borrowers to pay their debts. At best, this could slow the global economy. At worst, it could trigger another financial crisis.

The question that Mr. Samuelson does not consider is, given its risks, why has China engaged in trade war and incurred such high levels of debt for so long? I think the simplest explanations are that it manifestly worked and they still don’t believe that the U. S. will be willing to put up with the discomfort that Trump’s tariffs will bring. They may well be right.

However, I take haste to point out that, contrary to what Mr. Samuelson seems to believe, the war in the Pacific did not begin with Doolittle’s raid and the American Civil War did not begin with Bull Run. Those were counter-attacks. With its predatory mercantilist policies China has been engaging in trade war with the U. S. for the last 25 years. And it started incurring its present high levels of debt more than a decade ago. His concern is a bit late.

3 comments… add one
  • bob sykes Link

    In Samuelson’s mind, it’s still 1945. He has missed three-quarters of a century of history. Now is China’s time. It is so because of the policies that Samuelson and his ilk pursued.

  • Guarneri Link

    “His concern is a bit late.”

    And disingenuous. His selective worry about trade would be laughable if he didn’t have a following. Any disruption, for any reason, in a leveraged environment is a risk. Whether hollowing out the manufacturing sector, medicare, pensions etc.

  • Ben Wolf Link

    It should be noted Samuelson sees “servicing” debt (the idea humans should be in thrall to a balance sheet is another discussion) as the sole possibility. The thing about debt is it can also be cancelled out, with no loss of principal.

    It probably won’t happen but that’s due to ideological rigidity, not ability.

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