Contents
A World on the Brink: Economic Futures Unfold
A State of Affairs
A tempest brews as international tensions mount. In the heart of Europe, a hot war rages in Ukraine, serving as a backdrop to a swelling US-China trade war. Former President Donald Trump, not one to shy from controversy, threatens significant tariff increases. This foreshadows a potential break in international alliances, casting a long shadow over the global economy. Here’s more on the potential economic impacts.
Pivotal Elections Ahead
As the US election on November 5th approaches, the stakes seem rather high. Vice President Kamala Harris remains coy on the specifics of her foreign policy. However, it appears continuity might be on the cards. This means prevailing trade controls on China and steadfast support for Ukraine. Ex-President Trump, meanwhile, promises a staggering 60% tariff on China and hefty rates on others. This could be the largest trade jolt since the infamous Smoot-Hawley Act exacerbated the Great Depression. Trump also threatens to revoke security assurances from any nation failing to meet fiscal demands.
Economic Scenarios: Painting the Future
Bloomberg Economics presents three potential scenarios for the world’s economic future:
Slowbalization
In this scenario, trade, investment, and migration barriers remain stable. US tariffs and export controls on China persist, yet don’t disrupt market access. Advanced economies thrive on immigration, augmenting labour supply and productivity. Global GDP edges up from $105 trillion in 2023 to $183 trillion by 2035. Despite obstacles, efficiency gains from trade continue to buoy growth prospects.
- US Growth: Slows to 1.7% from 2.4%.
- Debt Levels:
- US: Climbs from 97% to 139% of GDP.
- China: Rises from 56% to 88%.
Cold War II
In this dreary potential future, the global landscape bifurcates into US and China-led blocs. Tariffs climb from 8% to nearly 40%, stifling trade. Defence spending sees an uptick, averaging 4% of GDP by 2035.
- Economic Notes:
- Global GDP growth diminishes to 2.9%.
- The world economy is $7.1 trillion smaller by 2035.
- US experiences a $500 billion hit to GDP.
- China’s GDP sheds $2.5 trillion.
Investment becomes chancy, migration halts, and technology advancements stall.
Re-globalization
Here, a more optimistic picture emerges. Tariffs return to pre-trade war levels. The Doha Round sees the light, easing tariffs significantly.
- Growth Projections:
- Global GDP growth averages 3.4% in the next decade.
- The world reaches $186 trillion in GDP by 2035.
- US adds $600 billion to its GDP by 2035.
- China sees $800 billion growth benefit.
This scenario sees border-crossing capital and workforce movements rekindle. However, the defence will be no less costly.
Which Path Forward?
Neither candidate offers a swift return to the era of dynamic globalisation seen in the late 20th century. Trump’s 2016 campaign proved the political allure of distancing from free trade. Even so, times evolve, and while unlikely today, renewed global enthusiasm may emerge again.
The more probable course seems to be slowbalization. The US’s strategic approach—a "small yard, high fence"—combats China’s tech access whilst sustaining openness for broader benefits. Yet under Trump, an icy Cold War II world might not be unimaginable. His policies impact allies and adversaries alike.
The mix of slowbalization and Cold War II risks presents a rather challenging landscape. Growth weakens, supply chain disruptions heighten inflation, and investment opportunities become more hazardous. Emerging markets find ascending the economic ladder increasingly arduous. At the same time, security might come at a hefty price.
In conclusion, while predicting the future remains elusive, understanding these scenarios can aid in preparing for the economic shifts ahead.
Embrace change, stay informed, and remain engaged with the world’s dynamic markets.
