The last one may well prove to be most difficult issue. China has undertaken repeatedly to crack down on IP violations but its actions fall well short of its commitments.
In the International Monetary Fund’s World Economic Update, January 2019 chief economist Gita Gopinath warns of risks of a further weakening of the global economy after the IMF had earlier revised down its projections for global growth for 2019, from 3.7 per cent to 3.5 per cent.
“The further downward revision since October in part reflects carry over from softer momentum in the second half of 2018… Risks to global growth tilt to the downside,’’ Gopinath warns.
She cites factors beyond the US-China dispute likely to impact global growth. These include high levels of public and private debt; a ‘no-deal’ withdrawal of the United Kingdom from the European Union; weakness in German manufacturing due to the introduction of new automobile emissions standards; concerns about sovereign and financial risk in Italy; a deeper-than-anticipated contraction in Turkey; and a more pronounced than anticipated slowdown in China.
In view of the latest PMI readings a slowing Chinese economy, irrespective of a likely compromise in the US-China trade dispute, is shaping as the most concerning issue for the global economy, one with worrying implications for Australia.
“China’s economy will slow due to the combined influence of needed financial regulatory and trade tensions with the United States,’’ Gopinath of the IMF says in her briefing note.
She blames China weakness on regulatory tightening to rein in shadow banking activity and off-budget government investment against the background of trade tensions with the US.
Gopinath warns China’s economic instability “can trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure”.
In other words, the world is entering one of its periodic moments when risk is elevated more or less across the board.
China’s weaker growth outlook is bringing down growth in emerging and developing Asia to 6.3 per cent in 2019 from a previously forecast 6.5 per cent.
Gopinath notes lingering uncertainty in the US-China trade wars is having a ripple effect on global confidence.
“Global trade, investment, and output remain under threat from policy uncertainty, as well as from other ongoing trade tensions,’’ she writes. “Failure to resolve differences and a resulting increase in tariff barriers would lead to higher costs of imported intermediate and capital goods and higher final goods prices for consumers.’’
From an Australian perspective, KPMG Australia’s Economics and Tax Centre has produced a useful paper (albeit a bit out of date given the likelihood of a deal). Trade Wars: There are no winners addresses consequences of relatively open trade to restricted trade between the world’s two largest economies.