Three major challenges to the world’s economies

Tuesday, 2019-07-23 17:26:07
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The escalating trade war between the US and China is one of three major challenges to the global economy at present.
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NDO – The escalating trade war, US-Iran tensions showing no signs of cooling down, and the constantly existing risk of financial uncertainty are the three major challenges to economies around the world at the moment.

According to analysts, the “costly” trade war between the US and China remains one of the biggest obstacles to the global economy, while the current major concern is the dark outlook of negotiations and handling contradictions between the world’s two leading economies. During their recent high-level meetings in Japan, US President Donald Trump and President of China Xi Jinping agreed to a “cease-fire” in the two sides’ year-long trade war in order to restart a new round of talks. On July 19, the Chinese Ministry of Commerce confirmed that Chinese Vice-Premier Liu He had a phone call with US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin. However, in addition to phone conversations, the two sides have not yet given a specific schedule and steps for this round of negotiations. Meanwhile, the White House boss has still left open the possibility of imposing tariffs on another US$325 billion worth of Chinese imports. According to Chinese Foreign Ministry Spokesperson Geng Shuang, If the US imposes new tariffs, the roadmap towards reaching an agreement between the two sides will be prolonged.

As the US-China trade war has not yet showed signs of cooling down, trade tensions between Japan and the Republic of Korea (RoK) are also posing challenges to the two countries’ economy and “overshadowing” the region’s economic prospects. The trade and tourism sectors of Japan and the RoK “caught a chill” after Tokyo imposed restrictions on tech exports to Seoul. Meanwhile, many Koreans boycotted Japanese goods and tourism programmes. Hana Tour, a RoK travel company with the largest number of visitors purchasing overseas travel programmes, said that since July 8, the number of people booking travel programmes to Japan has been reduced by half compared to previously, now at an average of 500 people per day. The online travel company Interpark Tour saw a 50% increase in the number of tourists canceling Japanese tour programmes, while new bookings were also halved.

The second major challenge to the world economy is the risk of a US-Iran war. In recent days, after the International Atomic Energy Agency (IAEA) informed its member nations that Iran is enriching uranium to 4.5% purity, above the 3.67% limit set by its 2015 deal with major powers, and that Iranian officials warned of the possibility of enriching uranium to 20% purity in the near future, tensions in US-Iran relations have reached their peak. The risk of a US-Iran war has destabilised global markets, causing the red-hot stock market and a sharp rise in gold and oil prices. Unless the “Iran gunpowder barrel” has its detonator removed, the Middle East will constantly be on the brink of a devastating war that threatens the regional and global economy.

In addition to the two major challenges mentioned above, the world economy is facing the risk of declining growth and financial uncertainty. After a period of strong growth, the US economic outlook has begun to look gloomly. Meanwhile, the National Bureau of Statistics of China recently released data showing that the country’s gross domestic product (GDP) growth in the second quarter of 2019 stood at 6.2%, the lowest level in nearly 30 years. The economies in East Asia and Southeast Asia also showed signs of declining growth amid declining exports.

Moreover, the risk of financial uncertainty still exists. Although the 2008 public debt crisis is now far behind, public debt always remains a “difficult problem” for many large economies. The total public debt of the US has increased to a record US$22 trillion since March. In Europe, Italy and Greece are still the “weak links” of the regional economy as their public debt continues to rise. Greece records the largest public debt increase among the Eurozone countries, from 176.2% of GDP in 2017 to 181.1% of GDP in 2018.

Another factor that could cause global financial uncertainty is the emergence of an “interest rate race”. After the US Federal Reserve (FED) recently revealed the possibility of adjusting interest rates as the US economy began to see risks of growth decline, economic experts warned that, once the FED implements a loose monetary policy, China, Europe and Japan must also implement a loose monetary policy to ensure competitiveness for their exporters. Accordingly, an interest rate race can disrupt the world financial market and negatively affect economies.

At the moment, the world has just come out of a “decade of loss” because of the financial-economic crisis breaking out in the US and Europe more than 10 years ago. However, analysts warn that if the three aforementioned challenges are not resolved soon, economies are likely to be at the threshold of a new crisis.