Abstract

Both the United States and China over the past several years have experienced slowing long term GDP growth.  In the case of the United States and many other high income countries, it is widely believed that slowing technological innovation is one underlying cause.  The long term impact of the global financial crisis of 2008-2009 also played a role.  In China it is the end of the era of high catch-up growth—something that happens to all developing countries when they reach high middle income status.  China’s economic growth is likely to slow further in coming years even if economic reforms are vigorously pursued.    It is in this context that a new U.S. government leadership appears to want to fundamentally alter the global trading system that has existed and grown since the end of the Second World War.  This global trading system was central to the growing prosperity enjoyed by most high income countries and it also facilitated the rapid rise in income of a number of developing countries including notably China.  If this system were to be fundamentally altered or destroyed, the consequences would reinforce and possibly even end the era of spreading global prosperity. 

This brief essay will explore in more detail why economic growth is slowing in both the US and China.  It will first attempt an answer to the question of whether the growth in the US and other high income countries and in China is vulnerable to falling further and possibly to a level that could be considered secular stagnation even in the absence of rising trade frictions. The essay will then attempt to understand whether a fundamental change in the global economic system and a descent into a protectionist era would slow growth further, possibly dramatically.  Finally an attempt will be made to bring some reality to the heated rhetoric that has characterized the early discussion of the likely trade policies of the U.S. Trump administration.  Are we really going to enter into an era of trade wars or is the global system more robust than some of the trade war rhetoric suggests? Are there safe guards that might prevent a descent into extreme protectionism?