China-US trade disputes: from a long-term economic growth perspectiveMar. 10,2020
The China-US trade frictions apparently stem from the long-standing current account imbalances between the two countries. However, as we argued in this article, the fundamental cause is the difference in long-term economic growth and productivity progress between the two countries. History shows that many developed countries, including the US, have achieved long-term and steady current account surplus during their economic take-off and catch-up periods. Empirical evidences also show that (relative) economic growth rate is more fundamental in determining a country’s current account status. There are two channels for economic growth to induce trade frictions: one is that a country tends to raise trade frictions when it experiences a slowdown in economic growth, while the other is that the change in economic ranking may also deteriorate trade conflicts. The former is mainly driven by the dissatisfaction of the deficit countries, while the latter is driven by the world-wide adjustment in terms of economic and political power. Since a country’s long-run economic growth relies on the improvement in technology and productivity, the future of the trade frictions will depend on the race between “technological progress” and “accidents” of conflicts that arise from intensifying rivalry between the two powers.
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