LONDON — Despite being tossed around like a ball in a game by ever-changing trade wars, shortages of critical minerals and tense standoffs between the United States and China, the global economy has proven more resilient than anticipated.
But don’t think it’s time to breathe a sigh of relief. The carousel shows no signs of stopping.
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“We are living in a uniquely turbulent time,” said Daron Acemoglu, an economist at the Massachusetts Institute of Technology (MIT) who won the Nobel Prize in Economics last year.
Profound transformations continue to shake up the global economy, including the artificial intelligence revolution, rapidly aging populations, climate change, and a global turn against liberal democracy and the rules-based international order.
All of this tends to reshape jobs, politics and lives.
The transition has been complicated by chaos in economic policymaking around the world this year.
In the United States, contradictory statements are frequently issued by the White House, while tariffs are imposed and withdrawn without warning.
Last month, for example, President Donald Trump suspended tariffs on meat, tomatoes, bananas, coffee and other foods, while last week he threatened to increase them on rice from India and China.
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Tariff-driven price hikes are still spreading through the U.S. economy like a rat being digested by a snake. At the same time, the future of a large portion of the president’s tariff policies remains uncertain until the Supreme Court rules on their constitutionality.
On the spending side, Trump promised to use a $250 billion fund generated by tariffs to pay trillions of dollars to farmers, taxpayers and creditors. Public debt soared to record levels, reaching 125% of the country’s total production.
And the stock market’s skyrocketing, driven by artificial intelligence companies, is fueling both fortunes and fears of a future crash.
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In Europe, most countries continue to experience slower growth than other advanced economies. For several years now, the European Union’s share of the global economy has been declining amid stronger competition from the United States and China.
Investment in artificial intelligence also lagged far behind.
“Europe has a huge innovation problem in the technology sector,” said Acemoglu, who won the Nobel Prize for his research into how institutions shape national prosperity.
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With 27 members who have different priorities and internal pressures, the European Union faces enormous difficulty in implementing public policy recommendations considered essential, such as strengthening its single trade and capital market, simplifying regulations and signing new trade agreements.
This week, for example, the EU postponed the vote on approving a trade agreement with Argentina, Brazil, Paraguay and Uruguay that has been negotiated for decades.
Producers and manufacturers are hurt by high energy prices and face increasing competition from cheap Chinese exports that, before Trump’s tariffs, would have been directed to the United States.
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Security threats are pushing European governments to further blow their budgets and dive deeper into debt by devoting substantially more resources to military spending.
The war in Ukraine continues, and President Vladimir Putin of Russia shows little sign of moderating his aggressive stance.
Trump continues to weaken the United States’ commitment to the Atlantic alliance. A recent Danish intelligence analysis warned that the United States “no longer rules out the use of military force, even against allies.”
On the other side of the globe, China is still suffering from the collapse of its real estate market and the decline in investment in real estate, infrastructure and manufacturing.
Still, China’s economic influence is growing. A record $1 trillion global trade surplus shows that Trump’s tariffs have done little to reduce the country’s trade dominance or its dependence on exports to boost the economy.
The International Monetary Fund recently revised China’s annual growth projection upward to 5%.
“These imbalances are becoming unsustainable,” President Emmanuel Macron of France said during a visit to China in December.
Europe is not the only destination for the growing flood of Chinese exports. Southeast Asia is among the regions that have seen the biggest increases.
Dani Rodrik, an economist at Harvard University, said the West’s “response to China’s manufacturing offensive has been misguided and ineffective.”
Chinese innovation has produced significant advances in climate and energy that benefit the entire planet, he said, adding that “rather than a wholesale condemnation of Chinese mercantilism, the West needs a more nuanced strategy.”
He suggested focusing efforts on the next generation of technology rather than trying to copy what China has already done.
In the field of artificial intelligence, China offers significant competition to the United States. Acemoglu said China has an advantage over the United States in terms of the number of well-trained engineers.
The upending of the decades-old trading order, with the United States clearly at the top and leading the way, is also creating new uncertainty and costs for the world economy.
“We are certainly in this limbo where there is no hegemony, and countries feel more comfortable going their own way,” said Maurice Obstfeld, senior fellow at the Peterson Institute for International Economics.
As impromptu bilateral trade agreements multiply, companies also need to be more concerned about the origin of their materials and rising compliance costs in the face of additional documentation requirements. “It’s a trading system that’s much more prone to failure than what we were used to,” Obstfeld said.
Diane Coyle, an economist at the University of Cambridge, has observed how the Covid-19 pandemic and its aftermath have revealed unforeseen vulnerabilities in the global supply chain.
“I don’t think we yet have a detailed view of global and national production networks and where these bottlenecks are,” or where they will appear when a new crisis emerges, she said.
Political currents can bring even more instability to the world economy. “Many people in many countries feel like their lives are going backwards,” Coyle said, and distrust in government is growing.
Elections in several countries next year could change policies. The midterm congressional elections in the United States, which could serve as a referendum on Trump’s economic agenda, will likely see the government boost public spending — and the deficit — to stimulate the economy.
Sweden’s general election will show how some of Europe’s far-right populist parties are faring and test the electoral system’s susceptibility to foreign disinformation campaigns.
In Latin America’s largest economy, Brazil, where Trump has used tariffs to try to influence domestic politics and judicial decisions, President Luiz Inácio Lula da Silva will face a far-right populist challenger.
A group of outside advisers from the twin guardians of the global financial system, the World Bank and the International Monetary Fund, have captured this feeling of dislocation — and perhaps even apprehension — in a new analysis of the future of the world economy and the role of institutions in it.
They introduced the report with a quote based on the 1929 writings of political philosopher Antonio Gramsci: “The old world is dying, and the new world struggles to be born; now is the time of monsters.”
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