These days it does not matter how much the US economy is pumped with steroids, if China cannot keep pace, the rest of the world slows down. Even the US begins to stagger.
That is the message from the International Monetary Fund, which has supplemented its usual March and October biannual health checks on the global economy with a handy interim report timed to coincide with the Davos business and political leaders’ summit.
Where once the US was a V8 engine driving the global economy, now it has an equal partner on the other side of the Pacific.
In a short report directed at the business leaders and “thinkers” attending the World Economic Forum, there were warnings about a no-deal Brexit and the shockwaves it would send through the global economic and financial systems. Italy was admonished for almost wilfully throwing away its recovery in a dispute with the European Union over its budget deficit.
But the slowdown in the global economy over the past year and the worsening prospects for the next two years are almost entirely traced back to China and how well the Communist party leadership is handling the country’s economic affairs.
Given the task at hand, there is an argument for congratulating Beijing. After it came to the rescue of the global economy in 2009 with a monster package of spending and borrowing, it has tried to bring the debts of its state enterprises under control, temper speculative property buying and restrict banks from reckless lending. All this has happened while its leaders have sought to clean up the major cities (of corruption and dirty air) and raise approximately 10 million people out of poverty each year.
Unfortunately, Donald Trump’s determination to punish China for its exporting prowess could not have come at a worse time. The Communist party may have tightened its grip on economic activity and paid less heed to human rights abuses, but the capitalist genie is, to some extent, out of the bottle.
The Chinese people from Shanghai to Chengdu like to speculate on property, the stock market and make money using cheap state finance and without paying too much attention to climate change.
Until recently, Beijing could always turbo-charge exports and generate some extra income. With Trump’s negotiators blocking that route with tariffs (watch out Britain, the president’s trade team are difficult to please), China has seen its growth rate fall to its lowest level since 1990.
The IMF boss, Christine Lagarde, was quick to downplay the potential for an imminent shock. She obviously wanted to sound more upbeat to her fellow citizens of the world, 1,500 metres up in the Swiss mountains.
But she couldn’t help warning that China’s fate would determine the path for the rest of the world and that – without naming him – Trump should resolve his differences through negotiation and cooperation. Otherwise a difficult transition in China will founder, taking much of the world economy’s growth with it.
As wishful thinking goes, it is hard to beat.
A caring, sharing Davos
There are delegates in Davos who breathed a sigh of relief when Trump announced that he and his delegation would not be turning up this year as planned. Time to think, they said. Especially about sharing.
Lagarde, who was Nicolas Sarkozy’s right-of-centre finance minister before taking the IMF job, said on her arrival: “Solidarity is in all our self-interest.”
The theme of sharing covers inequality, diversity, climate change and, at the top of the schedule on the first day, health.
At Davos, the approach is mostly about the self, in line with Lagarde’s theme. So caring for someone in your community will make you more productive in your job. Opting for a career in the health industry will give job security in a world of ageing and increasingly unhealthy populations.
On the other hand, sharing the wealth accumulated by the richest 1%, many of whom are at the WEF, does not appear to rank very high on the agenda.