Ann Pettifor has long been an influential commentator on the state of global economies and finance, since leading a successful campaign for debt relief for developing countries in the 90s, Jubilee 2000, and then foreseeing the 2008 financial crash.
As Trump’s trade wars destabilise the world economies, The Mint caught up with her to get her take on the current instability, where it would lead and what could be done. She wasn’t that hopeful.
Summary
Key Takeaways
- The trade war is fundamentally about inequality, with export-focused economies leading to domestic under-consumption and global overproduction
- Financial instability, particularly around US bonds and the dollar’s reserve currency status, poses major risks to the global economy
- A lack of political leadership and hollowed-out political systems make addressing these complex issues challenging
- Regional clearing unions could offer an alternative to the current global financial system, though implementing this globally faces significant hurdles
Topics
Root Causes of the Trade War
- Inequality at home leads to focus on exports and “dumping” on other countries
- Export sectors given privileges/subsidies, benefiting the wealthy (e.g. coastal China vs inland)
- Results in under-consumption domestically and overproduction globally
- Environmental consequences as resources extracted to produce goods that can’t be consumed
Financial System Instability
- US bond market showing signs of stress, with investors selling treasuries
- Weakening dollar despite higher US interest rates – capital flowing to Swiss franc, euro
- China holding large amounts of US bonds creates potential for major destability
- Need for alternatives to dollar as reserve currency, but no clear successor
Potential Solutions
- Keynes’ idea of an international clearing union to balance trade without need for reserve currency
- Bank for International Settlements could potentially play this role
- More likely to see regional clearing unions emerge first (e.g. post-WWII European example)
- China could potentially lead on transforming economy and addressing climate crisis
Challenges for China
- Needs to reorient economy toward domestic consumption
- Facing overproduction issues across multiple sectors (steel, renewables, etc.)
- Must maintain growth to prevent social unrest
- Balancing development with environmental constraints
Global Economic Outlook
- Trump’s actions destabilizing entire global economy
- Lack of intellectual/political leadership to address complex issues
- Hollowed out political systems ill-equipped to handle challenges
- Pessimistic outlook due to these factors
