The year ahead could prove an important juncture for the world economy. The pace of global economic expansion is now at its slowest since the financial crisis a decade ago. In part, this reflects cyclical deceleration toward what appears to be structurally slower global growth. But the uncertainty created by the shifting U.S. trade policy, especially vis-à-vis China, is adding pressure on both fronts.
A prospective phase-one deal between the United States and China could provide some temporary relief. But it will not address U.S. demands for deeper structural reforms to China’s economy, nor will it alleviate geostrategic pressures to decouple the two economies in a variety of areas, notably technology. Critical questions now are whether a resolution can be reached on needless tit-for-tat attacks and how disruptive decoupling would be.
The 2020 U.S. presidential election could also be a watershed moment, signaling whether the kind of economic openness and cooperation that has driven global growth in the past can remain largely intact. A continuation of the Trump presidency would mean further attacks on the foundations of an open global economy, though a win for the Democrats does not necessarily mean a return to economic normalcy.
Additionally, Asia’s export-driven growth model is increasingly under threat. A slowing Chinese economy and a sharply decelerating Indian economy compound this threat. Slowing growth in Asia’s two giants is symptomatic of a pattern across much of emerging Asia of limited progress with productivity-enhancing reforms, which raises questions about Asia’s ability to sustain its rise and continue fueling global economic growth.