Project Syndicate: Impact of Chinese Recession

Economic recession, spurred by protectionist policies, is inevitable for China. Kenneth Rogoff, writing for Project Syndicate, rejects economic analysis suggesting that much of China’s problems could be regionally contained and argues that the China’s problems would quickly spread to international capital markets with so many foreign firms earning profits in Chinese markets. Asia’s high saving rates contribute to low interest rates for both the US and EU: “Thus, instead of leading to lower global real interest rates, a Chinese slowdown that spreads across Asia could paradoxically lead to higher interest rates elsewhere – especially if a second Asian financial crisis leads to a sharp draw-down of central bank reserves,” Rogoff writes. “As bad as a slowdown in exports to China would be for many countries, a significant rise in global interest rates would be much worse.” Countries rebounded from global recession thanks to low rates. Chinese authorities helped the global economy by adeptly handling economic crises since 2008. The US and China could forestall recessionary pressures by reaching a trade agreement before January 1. Otherwise, the world might discover just how much the world’s second largest economy matters. – YaleGlobal