USA vs. China

7 Apr 2023

A new and dangerous phase of relations between China and America can bring a lot of problems for the world economy and not only.

After the removal of restrictions on the coronavirus, China opened up and became accessible to the world economy again. Everyone was waiting for this event and hopefully expected that the global crisis would end and new growth would begin, but China is not so simple.

Tensions between China and the rest of the world are only growing, because China sees the weakness of America and Europe, in addition, China feels pressure from America, which does not want to put up with a new big rival and wants to destroy it.

America is not ready to just give away the title of economy No. 1.
President XI has won the election again and is hostile to America, which means a difficult future for the countries' economic relations.

Xi is starting to establish contacts with neighbors and with political allies. Xi's recent meeting with Putin confirmed the strength and cohesion of China and other countries.

In response, America is trying to restrain China by force, increasing military tension in the Asian region. America imposes strict restrictions on products from China, while not yet able to replace vital parts, America is trying to build new production in other countries.
In turn, China is increasing military spending and is not going to give up power in Asia, demanding to take its hands off Taiwan.

All this leads to possible conflicts and a downturn in the economy.
A drop in global GDP to an alarming 7% is possible.
Last year, America imposed a ban on the sale of some semiconductors and equipment that is manufactured in China. This event increases the gap in the economies of both countries, because now not only China will not receive money, but the United States will not receive important components.
In the US Congress, a complete ban on TikTok is on the agenda. This platform generates billions of dollars and its complete closure will lead to big problems.
As noted in a recent article by Alan Wolf, Robert Lawrence and Gary Hufbauer of the Peterson Institute for International Economics, the growing hostility to trade in the United States risks negating the achievements of the last nine decades of extremely successful policy.
A new World Bank book highlights that the long-term prospects for global economic growth are deteriorating. One of the reasons is the slowdown in global trade growth after the global financial crisis of 2007-09, exacerbated by the turmoil after the Covid pandemic and the rise of protectionism. Among other things, as noted in the book, trade “is one of the main channels for the dissemination of new technologies.” In addition, it should be noted that a more protectionist world will have a lower elasticity of supply and, consequently, a greater propensity to inflationary shocks.

From all sides, countries are trying to aggravate the situation. Chinese investment in the US economy is at a minimum, investments from the US are no longer directed to China.
China, in turn, wants to make the yuan the number one currency and create a union within which all payments will not be made in dollars.

All this can have a detrimental effect on the dollar.
The future is foggy as never before.
The US is printing more and more money, causing more and more problems.
China is a dangerous rival that is gaining strength.

What will happen next? What do you think?

Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻