China and Germany exploit the global system without accepting reciprocal responsibilities to manage it. It cannot go on
In the darkest hours of the financial crisis in the autumn of 2008, it was obvious that all nations’ economic destinies were intertwined. Today, that sense of a collective global economic interest is receding. On 15 April, a decision in Washington will be taken, the impact of which will be a sharp reminder than in 2010 all still connects. The United States is to rule, unilaterally, whether China is unfairly manipulating its currency against the dollar to promote its exports; if the case is accepted, it’s a de facto declaration of economic war and a signal that now it is every country for itself.
The Americans aren’t just making a noise. They will back their judgment with a tariff on Chinese imports into the US and China is unlikely to back down. It will fight fire with fire. Other countries, worried that the Americans and Chinese will dump goods on them that were destined for the Chinese and American markets, will feel it is legitimate to protect themselves in turn. Britain’s export markets, open for two generations, will regress towards the closure of the 1930. Hopes of economic recovery will be dashed.
It is not just the US and China that are more economically nationalist. The Europeans finally arrived at a deal to help a Greece stricken with a colossal budget deficit last week, but it was hardly an exercise in European solidarity. Germany dragged its feet and only signed up if the IMF led the negotiations and stumped up a third of any bailout funds; there was no hint that Germany itself might increase public borrowing to reflate its economy to help other eurozone countries in trouble. It was Germany first.
The lack of internationalism is hopelessly short-sighted. All the evidence about the aftermaths of credit crunches where there are high levels of private indebtedness is that bank lending grows at a quarter or less of the rate it grew at beforehand, a hugely depressive effect on the economy. But this is a synchronised credit crunch with a synchronised global slowdown in credit; the depressive effect will be global. The temptation for any single country to use trade and currency policy to capture more of the stagnant pool of jobs is ever-present – it is what the Chinese have been doing for years – but when national economies were booming the impact could be shrugged off. Not today.
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