Carnegie Endowment for International Peace
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U.S. households will likely respond to the shocks of the pandemic by increasing their savings rates, as will foreign households. If the U.S. government does not decisively increase spending, higher American household savings will force either American debt or unemployment to rise even more.
Whether the U.S. current account deficit is harmful or not to the U.S. economy depends on the assumptions we make about capital scarcity. In a world awash with excess capital and insufficient demand, the U.S. current account deficit is a drag on growth.
China’s rebalancing can only occur in a limited number of ways, and each of these has a fairly predictable impact. The path Beijing chooses to follow will likely be based on political decision-making.
There is no way Beijing can address its debt problem without a sharp drop in GDP growth, but as unwilling as Beijing may be to see much lower growth, it doesn’t have any other option.
Why Alexander Hamilton should remain on the ten dollar bill.
The Chinese growth model is not radically new. It is based primarily on the growth model developed by Japan in the twentieth century, and it has been implemented in various forms by many countries.
China’s leadership is saying all the right things, but the political and economic challenges they face to achieve meaningful reforms remain daunting.
Chinese growth may continue at a rapid pace this year, but a growing liquidity-induced bubble will eventually require major reforms.
Although an appreciation in China's currency value could benefit the United States in theory, Chinese leaders would likely counterbalance such a rise with policies that could further damage both the Chinese and U.S. economies.
In order to sustain economic growth during its transition toward a more balanced economy and help keep U.S. demand for Chinese exports high, Beijing should invest in the U.S. transportation infrastructure.