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A man rides a scooter past a giant screen showing news footage of Chinese President Xi Jinping attending a Chinese Communist Party politburo meeting, in Beijing, China December 9, 2024.
China’s vows to pump up its economy — with one eye on Trump’s tariffs
China’s Politburo — the top leadership cabinet — said Monday it would take “more proactive” fiscal measures and loosen up its monetary policy in 2025 as it aims to boost domestic consumption. The body met ahead of the annual Central Economic Work Conference, reportedly scheduled for Wednesday and Thursday, at which the country’s economic policy priorities for the coming year are laid out — and one of those priorities is gearing up for Donald Trump.
The background: China has experienced over three years of economic turmoil that originated in the all-important property market, where most Chinese households keep their long-term savings. Defaults and halted constructions from major developers dovetailed with a local government debt crunch to place tremendous headwinds against economic growth, leading to stock market turbulence and high youth unemployment.
Beijing has attempted to goose growth with monetary easing (aka lowering central bank interest rates) since September and unveiled a $1.4 trillion debt package aimed at stabilizing growth in November. But kickstarting the economic engine is proving difficult.
Watch out for Trump: The incoming US president is promising to hike tariffs on Chinese goods, having mentioned figures as high as 60% on the campaign trail. While tariffs are a laborious way to cut off one’s nose to spite one’s face and are likely to hurt the US economy, Beijing’s exports are one of the few sectors doing well right now. Getting to a stable footing before the trade barriers go up must be a high priority.
China isn’t just playing defense though: US chip-making giant NVIDIA saw its stock slide 3% on Monday after news broke that Beijing was opening an antitrust investigation. NVIDIA has been a darling of investors during the AI boom, with shares nearly tripling in value this year — but this shot across the bows is a sign of what could come.A view of drones during a military exercise in an undisclosed location in Iran.
Hard Numbers: Ukraine hits Iranian drones, Lula still leading, Japan needs stimulus, Chad bans opposition
70: Ukraine's military has shot down 70% of Iranian-made drones launched by Russia since mid-September. The drones are one of several reasons the war is having unexpected spillover effects in Middle Eastern politics.
4: A week out from Brazil's presidential runoff election, former President Lula da Silva is still polling four percentage points ahead of the incumbent, Jair Bolsonaro. Bolsonaro now claims he'll accept the result if nothing weird happens, although many fear he might pull a 6 de Janeiro if he loses.
100 billion: A ruling party exec says that Japan needs an economic stimulus of at least $100 billion to ease the public pain of rising inflation. On Friday, the central bank intervened to stabilize the yen for a second time amid growing pressure to finally raise interest rates — and with PM Fumio Kishida on the ropes.
7: Chad suspended seven opposition political parties after a crackdown against rare violent protests across the country turned deadly. Demonstrators resent that interim leader Mahamat Idriss Déby, son of Chad's longtime former strongman, plans to stay in power for two more years without facing voters.This article comes to you from the Signal newsletter team of GZERO Media. Sign up today.
Ask An Economist: How to lower inflation
US inflation is now at a 40-year high. So, what are we going to do about it?
That depends on where you think the problem is coming from, American economist and University of Chicago professor Austan Goolsbee says on GZERO World with Ian Bremmer.
If inflation is being driven by too much stimulus, like some economists such as Larry Summers believe, Goolsbee believes the Federal Reserve is doing the right thing by raising interest rates to cool demand. But if inflation is mostly due to the war in Ukraine or supply chain disruptions, rate hikes might result in stagflation.
"I think if we get a couple [...] more months like the ones we just saw [...] they're gonna be consulting the ghost of Paul Volcker," Golsbee says, referring to the former Fed chair who in the early 1980s triggered two recessions by upping interest rates to double digits in order to tame inflation.
What about risking more unemployment, like Summers has suggested? That would mean "a lot of pain for millions of people."
Watch the GZERO World episode: Explaining inflation & what's next for the US economy
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Trump & Biden spent too much on COVID stimulus, says Austan Goolsbee
The brief recession the US economy experienced during the pandemic was arguably the weirdest one ever.
Why? Because it was "an unprecedentedly steep downturn [followed by] an unprecedentedly rapid comeback," says economist and University of Chicago professor Austan Goolsbee tells Ian Bremmer on GZERO World.
What's more, that recession was driven by less demand for theoretically recession-proof services instead of stuff like goods and real estate.
And then there was the government response.
Goolsbee believes that President Joe Biden made the mistake of spending too much on the recovery to avoid the mistake of doing too little under the Obama administration. His take on the American Rescue Plan: "You would probably do smaller."
Watch the GZERO World episode: Explaining inflation & what's next for the US economy
Global inflation shock
Ian Bremmer's Quick Take: Going to talk about inflation. Why inflation? Well, because I posted something on Twitter that sort of exploded over the course of the last couple of days, which means people are clearly interested. And I'll tell you what the tweet was, I'll show you a little post here. It said, "US: left government, high inflation. UK: right government, high inflation. Germany: centrist government, high inflation. Italy: everyone in government, high inflation. Wild guess, it's not the government." Now of course, it is government in part, but it's not the government, which is the point. In other words, no matter who you decide to elect, if it was Trump, or Biden, or Merkel, or Scholz, or Johnson, or Starmer, or Bolsonaro, or Lula, you are getting high inflation, you're getting high inflation globally. I'll talk about why that is.
Now, a lot of people went nuts and said, "How can you call the US government left?" And certainly, from a global perspective, the entire US political spectrum is kind of on the right. And from the European perspective, you wouldn't call Biden a leftist, you'd call him a centrist. You might even call him center-right? Of course, Fox News on Primetime calls Biden and the Democrats a bunch of socialists. And if I said that the US was a left government, I mean a right government, then everybody in the US explodes, so it just shows how divided and screwed up everybody generally is anyway. But leaving that all aside, the point is the point. And it's an important point, which is that we are so divided in the United States and globally that when something that really upsets us happens that we haven't seen in over a generation, which is persistent levels of very high inflation, we get really angry, and we want to blame the government and blame the government hard.
And the reality is that no matter what your government looks like, you're dealing with very high inflation. Let's be clear, this is a global inflation shock. The economic disruption hit everybody. First with the pandemic because COVID destroyed global supply chains seized up the global economy. And then after that, you've got China's zero-COVID, just as you think you're coming out, the United States, the Europeans vaxxed, and relaxed, unmasked and going out, and going about our business and the Chinese locking down Shanghai and Beijing and some of their most important ports. And we still get so many of our goods, especially the low-cost ones from China. So, that hits you with greater supply chain risk. And then on top of that, the war, the Russians invading Ukraine, leading to massive disruptions in energy, massive disruptions in food and fertilizer, all of that is increasing prices.
Now, in response to those shocks, and those are shocks that are frankly of unprecedented scope in the context of the last couple of decades, so you would expect massive inflation just on the basis of that. But on top of that, governments met the shocks with a flood of money, and of fiscal spending, and it worked. And as a consequence, you ended up with massive demand that fell on shrinkings and disrupted supply. Now this shock is being felt very differently in different regions around the world.
So for example, in Europe, you're seeing it particularly in high energy prices because of their dependence on Russia for oil and gas, vastly more so than the United States or, really anybody else. And that's really hitting the Europeans harder, it's one of the reasons why French inflation, while high, is not as high as Germany, and Italy, and the UK, because the French actually are much more reliant on domestic nuclear energy as an energy source. Didn't stop Macron from getting hit really badly though in elections over this weekend, being blamed for how badly their economy is performing. In the United Kingdom, it's also a weak currency that's helping driving inflation up even higher than it is in the United States. In the United States, supply chains are a very big piece though also the size of fiscal expansion under Trump and under Biden is a big piece of it. In emerging markets, the food crisis is the bigger piece, as well as protectionist response in a lot of those countries. But everyone is facing their variant and all of these pieces are coming together.
Now, it's very easy to criticize the United States now for doing too much fiscal spending, particularly in 2020. And we heard that from Larry Summers, and that the Fed started too late to tighten. But we should, first of all, remember that fiscal expansion is one of the very few things that Democrats and Republicans, over the last two administrations, have strongly agreed on. I mean, massive deficits being run, massive expansions in spending in the Trump White House and in the Biden White House. This was not a country that was concerned about trying to keep debt levels down. Also, you want to talk about monetary policy, the one person that Trump and Biden agree on was Powell, the Fed Chair. And so, obviously you're getting consistency in terms of policy from the Fed. The monetary response in countries, advanced industrial economies around the world, central banks are pretty independent from governments, in some cases a little less so, but nonetheless much more so than other members of cabinet, you experienced that in the United States, and this is the nature of the response.
But we should also not forget the uncertainty, the fear, the massive swings that have been occurring in supply and demand. And that we all really were feeling our way when the pandemic hit, in a dark room, and trying not to break too much furniture, trying to make sure this wasn't just a bailout for elites and big business, this was a bailout for everybody, for average citizens that were, would be hit by unemployment really, really badly. And so, yes, you erred on the side of more stimulus, and more expansion that created more of a V-shaped economic recovery, which I think at the time, everybody was breathing a collective sigh of relief.
Now inflation is going to come down as a consequence of this because these shocks are not going to be permanent. Yes, they'll be sanctions on Russia for the long-term, but the Europeans will diversify their energy supply, they will get more efficient. Yes, they'll keep coal going, but they'll also move faster on renewables over a couple of years, that's going to play out. Supply chains will get more normalized. China's zero-COVID policy will ebb away over the coming year as more Chinese get vaccinated as they have more therapeutics. Those things really do matter, they're structural.
But of course, inflation is at least as much a political phenomenon as it is economic. It creates an enormous amount of economic insecurity and leaders get blamed because they're in charge irrespective of what the causes are. So I understand it, even though there's not necessarily a lot that anyone right now can do in the nearest term to really affect it. I mean, I think that there's a good chance that Biden announces some kind of tariff relief vis-à-vis China. He's been dragging his feet on it because he doesn't want to be seen as soft on China, but he knows that would actually reduce levels of inflation in the United States, which are making him very unpopular. Some kind of gas tax holiday for the summer seems reasonably likely, maybe some green energy subsidies paid for by the government, but nonetheless would make life a little easier for the average American. But these are really at the margins, it's kind of like a Saudi energy deal is at the margins. There's nothing that's going to suddenly pre-midterm elections make this better or easier either for Biden, or for Bolsonaro, or as Macron just experienced this weekend.
My bigger concern, by the way, is that what all of this means is that governments may not have a lot of fiscal firepower left if we're now entering into a global recession. That's going to be a lot worse for developing countries that are highly indebted, and are dealing with high interest rates and aren't able to service their debt than the United States. But even the United States, it's going to have a harder time navigating the next global recession if it comes soon.
So anyway, that's where we are in inflation. It's a little bit less dramatic and hair on fire than what you see on cable, or on social media, but that's why you're here. I hope everyone's well, and I'll talk to y'all real soon.
For more of Ian Bremmer's weekly analyses, subscribe to his GZERO World newsletter at ianbremmer.bulletin.com
Top five US political moments of 2021
Well, I can think of five. The first and most important was probably January 6th. Historically important moment, rioters breached the Capitol building in order to stop the legal counting of the presidential election results, but also, it was an important moment because it created a dividing line for Republicans who had to decide if they were with President Trump, who had a role in instigating the riot, or if they were against him. A lot of Republicans ended up choosing to be with him creating various forms of apologies for the rioters over time, and even to some degree making martyrs out of some of them. This will be a really important defining moment, not just in American history, but also for the Republican party.
Second was the passage of the American Rescue Plan in the spring of this year. A $1.9 trillion bill that piled on top of the already $4 trillion in stimulus that Congress had passed in 2020 in order to help fight the coronavirus pandemic. Why was this significant? Because it wasn't necessary. What it ended up doing was overheating an economy that was already starting to recover from the pandemic providing households with $1,400 checks and continuing to pay people not to work and has contributed to the high pace of inflation that's been seen in the second half of 2021, which in turn has hurt the chances of President Biden's Build Back Better bill from passing into law. So this turned out to be a very significant moment even though it wasn't obvious at the time.
Third point, the withdrawal from Afghanistan. This is when you really started to see a steep decline in President Biden's approval ratings because the withdrawal got directly at the issue that he had built his campaign around, which is competence. The botch withdrawal, the headlines, the chaotic scenes at the airport really started to make it seem like perhaps the Biden administration didn't know what they were doing. That's been a drop from which they haven't recovered.
Also, something that happened over the summer I want to highlight was the CDC recommending masks indoors in response to the delta wave of the coronavirus. While I don't think this in and of itself was a politically significant moment, the return of the coronavirus in 2021 is going to be one of the defining things in Joe Biden's presidency. It's yet another reason that his approval ratings have been dragged so low and it's something that he just can't shake. This will be an ongoing storyline in 2022.
Finally, I think the fifth significant moment of the year gets at something else that's been hurting Joe Biden politically, which is inflation. He chose to renominate Jay Powell who was President Trump's fed chair because of the credibility Powell's built up as an inflation fighter helping the fed to pull out of the extraordinary measures they took during the pandemic and clear a path towards raising interest rates sometime next year. But his renomination is basically an endorsement of the fed's loose monetary policies and an endorsement of Powell's ability to keep inflation in check starting next year. This is going to be a huge story and it's a really big political priority for the Biden administration fighting inflation, and this is not the last you're going to hear about this.
Podcast: The LSE’s Minouche Shafik on how to fix our broken society
Listen: It was an ongoing question before the pandemic, but coronavirus has made it all the more urgent. With global inequality and extreme poverty on the rise, how do we patch up the many holes in the world's social safety nets? The idea of governments providing all adults with a set amount of cash on a regular basis, no strings attached, is gaining attention worldwide — especially given the need to expand post-pandemic social safety nets. But for London School of Economics Director Minouche Shafik, universal basic income "is like giving up on people." Shafik speaks with Ian Bremmer on the GZERO World Podcast.
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One economist’s argument against universal basic income
The idea of governments providing all adults with a set amount of cash on a regular basis, no strings attached, is gaining attention worldwide — especially given the need to expand post-pandemic social safety nets. But for London School of Economics Director Minouche Shafik, universal basic income "is like giving up on people." Find out why on the latest episode of GZERO World, which begins airing on US public television Friday, May 28. Check local listings.
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