Views: 1 Author: Site Editor Publish Time: 2019-05-31 Origin: Site
Where can the additional aggregate demand come from? Not from fixed investment in traditional manufacturing industries or residential housing. Instead, China can increase domestic aggregate demand by mandating the enhanced provision of public goods such as environmental preservation, protection and restoration; education; healthcare and eldercare. However, the central and local governments must take the lead in increasing the demand for public goods. The Chinese economy still has significant excess production capacity so that as long as there is demand, there will be supply, without kindling inflation.
I am therefore quite confident that China's real GDP will grow at a minimum of 6 percent in 2019. There are no winners in a trade war. But to the extent that the Chinese economy can maintain its rate of growth at around 6 percent and its employment close to its existing level, China will not lose.
The latest failure in the trade negotiations is probably due to the White House's updated evaluation of the presidential campaign in view of the US president seeking re-election. With the US economy in good shape－for which the US president can and will take credit－he does not need an agreement with China, because it could provide an opening for his opponents to attack him. He can campaign much better by blaming China and claiming that he would always walk away from a bad deal.
Had the US been serious about seeking an agreement this time, it would not have openly warned China not to retaliate, which was in fact an invitation for retaliation, providing in turn a convenient excuse for imposing further tariffs and sanctions.
China is not unwilling to make concessions but is unwilling and unable to make concessions under duress, which would be not only humiliating but also prove threats work, and thereby encourage moral hazard and lead to the use of more threats and demands. It will not settle the trade dispute.
But a complete rupture of relations and a new Cold War between China and the US are not in the best interests of either country. China has no desire whatsoever of forcing or even proselytizing its political and socioeconomic system on the rest of the world.