Prospect for the World Economy in 2017:

TIME FOR HESITATION

The current year is ending while Donald Trump, the US President-elect, is preparing to take over the helm of the world’s largest economy in the early days of 2017. In this regard, the silence of China as the world’s second largest economy is of special importance. The Chinese have slowed down their economic growth since 2 years ago trying to diversify their export-oriented economy and make it the second and even the main pillar of their large economy. This action of China has caused losses to some key economic partners of this country such as Australia. Reduced China’s demand for imports of goods and raw materials from Australia has decreased the economic growth of Australia to 1.7 in 2015. At the same time, the world economy is undergoing a recession because about 30% of global economic growth in the period between 2004 and 2014 was resulting from China’s growth and the world’s economy is experiencing a relative recession with the slowing economic growth in China. However, the question here is that can we hope that this recession will soon lift its shadow from the global economy over the next year?

News ID: 72365

Date: 15 February 2017 - 12:19

According to MANA, despite being tough, the answer to this question can be found by reviewing the US presidential election, current trends in China’s economy, and performance of the world’s major economies.
Let’s start with the US. Donald Trump, a contractor from New York who incredulously defeated a veteran politician like Hillary Clinton in recent elections of the US, has special and interesting views on governance. Having no experience in politics and always being known as a wealthy showman, Donald J. Trump is about to reside in the White House.
During his campaign, he strictly reprimanded the old and new international treaties such as NAFTA and Trans-Pacific, which were signed as symbols of globalization in order to facilitate the international trade. If elected, he claimed, he will either withdraw the US from those treaties or make revisions to them.
Perhaps Trump was looking to attract voters from the working class of the US who had put their job and future at risk following the intensified globalization process over the last two decades. Although it seems very easy at first glance to abolish these treaties, it will cause major losses to some major countries; Japan, Mexico, and, to some extent, Canada now find themselves in new conditions threatening their economy. It has been long that Japan has tried to get rid of a seemingly interminable recession and that’s why this country has greatly counted on the Trans-Pacific Partnership Agreement (TPPA). In this regard, Shinzo Abe, the Prime Minister of Japan, was the first one who reacted to Trump’s claims and, after meeting with the President-elect of the US, pointed out that the US withdrawal from the TPPA will cause dire consequences if executed. Signed by 12 countries including Japan, Malaysia, Vietnam,
Brunei, Australia, Singapore, New Zealand, Canada, America, Peru, Mexico, and Chile, the Trans-Pacific Partnership Agreement (TPPA) will create the world’s largest free trade area, eliminating thousands of tariffs on imports of goods and products, and establish common standards for these 12 countries. All these hopes are now being threatened.
In this regard, Mexico, as a leading and emerging economy, has a special look at and needs the market of its northern neighbor, while Trump has said he wants to revise NAFTA. This means the possibility of imposing tariffs on imports from Mexico to the US, which can be a severe blow to Mexico’s nascent economy. The US new elect president has also mentioned the same slogans about China. The reality is that China has been the main reason for Americans to vote for Trump. Since 2004 when China joined the WTO, many American industries have moved to China due to the much lower cost of production in this country. Of course, it is obvious that the US economy has also benefited from this movement, but the point is that the upper class mainly benefited from this set up while, the lower classes lost their jobs and were practically deprived of the cake of economic profits. The economic crisis in 2008 has also been effective in accelerating this trend. However, it was China that saved the US economy and thereby the global economy by buying 1271 billion dollars of the US governmental bonds. But it had another meaning; Chinese can now have the upper hand in their relations with the US by playing the card of securities.
It also depends on Donald Trump’s action. He has repeatedly stated that he plans to impose a tariff of above 35% on imports from China. This may make voters happy and give them the hope that industries will come back inside the US. But, if he does so, he will actually violate all international treaties, particularly WTO rules. Under these circumstances, the Yellow Dragon will be in a position of reaction whose consequences will be threatening to the global economy. Previously, China had occasionally warned about selling the US bonds below the market price at times of challenge with the US. However, the consequences of such a measure would be so devastating that both Trump and the Chinese will avoid resorting to their claims. Nevertheless, with his look-in policy, Trump certainly will not contribute to putting an end to the global economic recession.
China will be cautious in this situation more than ever, causing the horizon ahead to remain unclear and obscure. China is trying to be more self-reliant. The export-oriented economy of this country, with a value of about two and a half trillion dollars, has been now diversified and turned to the consumption oriented economy in order to strengthen China and substantially increase its bargaining power in the international arena. According to current projections, China will become the world’s first and largest economy in the coming years.
In this regard, China’s performance and the relatively deliberate reduction in economic growth of this country from an average of 8.6% per year to around 6% have negatively affected the emerging economies. Until recently, it seemed that Brazil, Indonesia, Russia, and South Africa are the future hopes of the global economy, but most of these countries have faced slowed growth due to China’s problems, political problems, and falling oil prices.
In the meantime, although India is hopefully going forward, the depth of problems of this country which are rooted in cultural issues has caused this hope not to be much reliable, and some fluctuations in this growth will be probably observed in the near future. Considering the prospect that the US future administration is outlining, concurrent with the threat of “Brexit” to the European Union and behavioral complexities of the Chinese and lack of defining clear and pre-set strategies by these country’s leaders, it seems that the next four years to be a time of difficulties and recession. However, given the rationality of economic processes, it can be hoped that a crisis similar to what happened in 2008 is not imminent, but it cannot be also concluded, based on the rise of populists in the four corners of the world, that thriving days are ahead. History has proven that in the wake of the economic crisis, intellectuals of a community roll up their sleeves and put an end to the crisis, but when you come back tired from the battlefield, they witness that populists and demagogues have deceived the nation with false claims in their presence. World War II is a good evidence of this example.