The relationship between the United States and China is getting worse every day. And a cold war cannot come at a worse time. The financial markets are singing victory, because they think that the worst is behind. Financial markets are an extremely imperfect benchmark. Markets collapsed in late March due to concerns about the coronavirus, but the real impact of the coronavirus was really felt in April and May. In other words, the markets were ahead of the facts.
A very large economic contraction in the United States, Europe and Latin America is estimated for this year. The drop in demand is creating a very dangerous deflationary spiral. Deflation generates unemployment. The currency rises in value and this destroys growth. The stimuli are helping. But things are not so easy.
The lack of confidence is generating optimism. But there is still a long way to go. The new normality implies that we will return with a broken wing and with the engines at half gear. April and May were difficult months but we still had savings and a lot of help was given at the height of the crisis. However, now is when the real marathon begins. Not everyone will make it to the end of the year. Many businesses will throw in the towels in the coming months.
The ideal approach in such a situation is international collaboration. Trade and good relations between countries is what the world economy really needs for its recovery. This is where the matter is further entangled. The rise of nationalism, the trade war, and geopolitical tensions cannot come at a worse time.
The coronavirus is stimulating change and deepening tensions. Many countries are rethinking their production and distribution systems. And they are talking about very profound structural changes for the postcoronavirus era. Are we too dependent on China?
To make matters worse, Donald Trump is in the White House and this is an election year. And his rhetoric is not helping much. “The Chinese virus”. “China must pay for the damage” “This attack is worse than Pearl Harbor, and the World Trade Center.” The relationship between China and the US has not been so bad in 40 years . But the China of today is not the China of 40 years ago. Today it is a power. And we could see a new cold war in the world.
The situation in the southern and eastern seas of China is worrying. Hong Kong and Taiwan are abuzz. It would not be unusual for an armed conflict to occur in the area, due to error or convenience. An American ship crossing a line it shouldn’t have can take the matter to other levels. A war with China could boost Trump’s popularity in an election year.
This small boom in the markets could be a trap. The stimuli and mistrust brought optimism, but there is still a long way to go and we have many dangers ahead. It is still too early to think that everything is written and this story is over.
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