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The next showdown on the world stage is coming up. On Thursday, the emissaries of the United States and China meet: Two self-styled strong men, Donald Trump and Xi Jinping, let explore whether the next round in the trade war can still turn away.
The importance of these negotiations can hardly be overestimated. If they fail, the US wants to impose tariffs on virtually all Chinese imports from 15 December; the average levies on China imports are then 25 percent. China has announced countervailing charges of similar magnitude.
The escalating trade dispute has brought a fundamental uncertainty into the global economy. The effects on the economy have long been noticeable. Especially in trade-intensive economies like the German economy (on Thursday there are new export figures), industrial companies are cutting back on their investment plans and are starting to reduce capacity, and possibly also to cut jobs.
Above all, however, the US and China themselves are painfully inflicting each other. US exports to China have fallen by 30 percent since the summer of 2018, imports by 15 percent, as Germany's leading economic research institute calculates in its joint diagnosis. Even taking into account that part of Sino-American trade is now being diverted via Vietnam, there has been a sharp decline in trade between two major trading partners.
Meanwhile, economic growth is slowing in China. So far, the government has succeeded in counteracting to the extent that the economy is reasonably stabilized. But this puts Beijing into the future (see more below).
Trump had promised the Americans that trade wars were "easy to win." Instead, there are now losers on all sides. And it is proving difficult to stop the escalation: a momentum has begun that threatens to override monetary policy.
All this was to be expected. Why did it happen yet?
Internal stresses discharge to the outside
At first glance, the scenery presents itself as follows: Two superpowers are leader figures, both of which can barely walk with strength - and each want to show their populations that they can not be pushed from the other side.
On closer inspection, however, both the US and China seem like battered giants. Both are struggling with inner tensions, which now discharge themselves to the outside in this conflict.
That Trump blames China (and other countries) for the social upheavals in the US has been known since the previous presidential campaign. The EU must also expect further import duties; The WTO ruling on distorting Airbus subsidies is just the right thing for the White House.
As far as China is concerned, Trump has at least one point. A state-capitalist economy of this size, which squeezes foreign investors into the transfer of intellectual property, harnessing entire industries for their nationalist economic strategy ("Made in China 2025") and providing them with cheap credit, represents a massive distortion of competition for which the international trading system does not is designed.
In that regard, Trump is right. The Europeans - and especially the German economy - now have similar reservations.
Why does not China steer?
The trade war could be quickly stopped if the Chinese government fulfilled US demands. But she would have to completely rebuild her economic model - which in turn would shake the leadership claim of the Communist Party. Xi Jinping, who last year made himself a great leader for life, has just shown his power on the occasion of the 70th anniversary of the revolution with a gigantic military parade in the Soviet style. Weak pointing does not fit this pose.
Even a half-trade trade-off would be better than another escalation. At least irreparable damage could be prevented. In the longer term, further progress could be made, ideally in dialogue between the US, the EU and Japan on the one hand, and China on the other.
In the past, Trump was always able to make surprisingly conciliatory turns - as long as they made him look like an ingenious deal maker in front of the world public. However, in light of the impending impeachment trial (pay attention to the hearings in the US Congress from Monday), the president is in permanent combat mode. A presidential gesture of trade policy reason currently seems out of the realm of possibility.
Three challenges: poverty, debt, climate
In addition to personal leadership tactics, profound structural issues that are strikingly similar in some respects play a role. They form the background against which the trade conflict unfolds.
Inequality: Wealth in the US and China is much more unequally distributed than in Western Europe. More than a sixth of the population lives below the poverty thresholds in the US, and more than a quarter in China. The income differences are much larger than in European OECD countries.
Also the regional divergences are serious in the two giant states. Per capita economic output is about twice as high in the rich northeastern United States (Massachusetts) than in the poor south (Mississippi). Similarly, the differences between China's southeast and its backward west. Such large imbalances tug at the social cohesion.
Debt: The US and China are indebted to almost the same extent, according to OECD figures. The state, companies and private citizens together push liabilities of around 250 percent of their respective economic performance. In the US, it is the state that is most heavily indebted; in China, it is the (often state-owned) companies.
Part of the US debt is financed by foreign countries. Thanks to the size of its capital markets and the world currency status of the US dollar, investors from all over the world are prepared to finance America's overconsumption on extremely favorable terms. So far, anyway.
The more Trump damages the international economic order and the national institutions, the more the US has to fear a reassessment of its solvency as the world's largest debtor nation. Recently announced plans to banish Chinese corporations from US exchanges may have raised more fundamental questions for some investors.
China in turn is by far the most heavily indebted emerging market. In order to keep growth going, Beijing's leadership has left the chain behind since the big Western recession of 2008 - keeping debt-financed growth on track. The state leadership seems to want to avoid a severe recession at any cost; the price is rising risks in the financial system.
China's creditors are predominantly in the country itself. Many of them assess the situation critically, as shown by the latent flight of capital that the authorities are trying hard to prevent. Capital controls should keep China's savings in the country. In addition, since 2014, Beijing has thrown nearly $ 800 billion of foreign exchange reserves into the market to stabilize the exchange rate.
The high debts become a problem, should the growth fail at some point. That's another reason why China relies on rapid technological upgrading. Beijing's ambitious Made-in-China strategy can only work if it continues to have access to foreign knowledge. The economy resembles a "house of cards", according to the think tank Merics: "China's ambitions are shaky and the dependence on foreign technology know-how remains high." The red economic superpower relies urgently on the exchange with the rest of the world.
Climate change: China and the US are the largest emitters of carbon dioxide and other climate-damaging gases worldwide. Over the next two to three decades, they will have to drastically adapt their economic model. Otherwise, climate change will not be slowed down.
It is true that both countries emit fewer emissions in relation to economic output than they used to. But compared to Western Europe, the backlog is enormous. All the bigger are the challenges for the future. It is true that the structural change towards a climate-neutral economy can trigger a new growth spurt. But first it devalues large parts of the existing infrastructure and costs millions of jobs - social explosives.
The best solution - and the worst
The situation in both countries is not as stable as it might seem at first sight. However, the trade war, it is clear, will not solve any of the problems that are at hand but, on the contrary, aggravate them. Conversely, open borders and the orderly exchange of goods and ideas would be enormously useful. Undoubtedly, settling the conflict would be the best solution.
But the ruler's calculus looks different. They are first and foremost about securing power: very short term for Donald Trump in the face of imminent impeachment and the beginning of the campaign - in the medium term also for Xi Jinping, who fears that his citizens are rebelling against the party and calling for civil liberties and political participation rights. as currently the inhabitants of Hong Kong.
The conflict with their respective opponents - along with the usual incantations of national unity and strength - makes Trump and Xi more than a sensible cooperative policy for the moment. Tragically, actually.
The main economic events of the upcoming week
Monday
Nuremberg - power and counter-power - trade union day of the IG Metall (until Saturday).
Washington - Impeachment I - In the House of Representatives hearings continue in the impeachment trial of US President Trump. The Foreign Affairs Committee and the Intelligence and Control Committee begin a hearing by George Kent, Foreign Ministry staff and, among other things, the United States policy on Ukraine.
Tuesday
Brussels - Euro money - The European Court of Auditors presents its audit report on the EU budget for 2018.
Berlin - Germany in the Trade War - Eurostat The Federal Association of Wholesale and Foreign Trade presents its view on the situation and prospects of foreign trade.
Brussels - Future Leadership - The European Parliament questions the Vice-Presidents-designate of the Von der Leyen Commission: Valdis Dombrovskis (Finance), Margrethe Vestager (Competition) and Frans Timmermans (Climate).
Washington - Impeachment II - Continuation of the House of Representatives hearing with T. Ulrich Brechbuhl, US State Department Advisor.
Wednesday
Luxembourg - On the situation in the euro area - Meeting of euro finance ministers (Eurogroup). Among other things, it concerns the state of the banking union and the planned eurozone budget.
Thursday
Washington - Fighting - Start another round of negotiations in China-US tariff dispute.
Wiesbaden - Key Size - New figures from the Federal Statistical Office on exports in August. Germany's export-driven economy suffers particularly from the weakness of world trade.
Washington - Impeachment III - Continuation of House of Representatives hearing, now with US Ambassador to the European Union, Gordon Sondland.
Friday
Oslo - Give peace a chance! - Announcement of the Nobel Peace Prize.
Sunday
Warsaw - change of power? - Elections in Poland. In polls, the ruling national conservatives are ahead.
