The 21st century has been the era of Chimerica. The symbiotic relationship between China and US drove global growth and brought these two countries (two systems) into a close relationship of trade and finance. In 2018, China was the number three goods export market for the US and the number one goods importer. The two countries had overall goods and services trade exceeding $730 billion and a trade deficit of just under $400 billion. The US is running a trade and savings deficit with goods coming to America and dollars building up in China.
These trade numbers have not been higher, yet philosophically there is a now a sea change in thinking about link between the two countries. There has been the belief that trade and cooperation would lead to change in China with deeper cooperation instead of rivalry like superpowers in the 20th century.
These trade numbers have not been higher, yet philosophically there is a now a sea change in thinking about link between the two countries. There has been the belief that trade and cooperation would lead to change in China with deeper cooperation instead of rivalry like superpowers in the 20th century.
The reality and dream of Chimerica was not perfect and was not all together healthy, but it was a trade and financial flow reality. Niall Ferguson, the historian, coined the phase a little over decade ago as an apt description of the times, but the Chimerica of the past is done regardless of any trade deal or the actual trade numbers. (See "Make Chimerica Great Again" by Ferguesen and Xu of the Hoover Institute to get their view on Chimerica.) There is now a political skepticism between the two countries coupled with super-power competition that is unlikely to reverse to anything we saw even three years ago. Trade may continue but in a wary form different from classic libertarian trade. China is now a strategic competitor not a strategic partner.
There may not be a reversal of financial deals but the world has to find a new framework because the dual power structure of west and east is not sustainable. Perhaps there is a new darker Chimerica. The framework of looking at China as another large economy for investing is in flux regardless of index inclusion or market capitalization. A world of rivalry is less efficient with trade and capital flow driven by new criteria independent of comparative advantage or return on investment.
Idea, culture, and people flows will dwindle in this darker world. Cooperative optimism has turned into mercantilistic pessimism. There will a new search for global partners in other countries. There is no room for a new order of liberalism for all countries. This will have a further spillover for all emerging market investing with greater instability and uncertainty. It is a headwind that cannot be ignored.
There may not be a reversal of financial deals but the world has to find a new framework because the dual power structure of west and east is not sustainable. Perhaps there is a new darker Chimerica. The framework of looking at China as another large economy for investing is in flux regardless of index inclusion or market capitalization. A world of rivalry is less efficient with trade and capital flow driven by new criteria independent of comparative advantage or return on investment.
Idea, culture, and people flows will dwindle in this darker world. Cooperative optimism has turned into mercantilistic pessimism. There will a new search for global partners in other countries. There is no room for a new order of liberalism for all countries. This will have a further spillover for all emerging market investing with greater instability and uncertainty. It is a headwind that cannot be ignored.
No comments:
Post a Comment