Macroscope | Trade war is pushing China to make the market reforms it needs to cope with its ageing population
- With the US withdrawing from its role as global financial leader and the renminbi gaining traction, China should cement its position with deep reforms so it can attract the capital it will need to deal with a current account deficit caused by demographic factors
The US, which acted as the leader of free trade for the past several decades, is increasingly reluctant to accept the cost of global financial leadership, such as a chronic current account deficit and an economy overly reliant on consumption and debt.
The dollar, the world’s main reserve currency, has not helped American exports industries either. The greenback tends to appreciate when global economic conditions deteriorate, reducing the competitive advantage of US multinationals when they need it most.
Now that the US is seeking to reduce the deficit and shed its global responsibilities, the trade war presents China the incentives to embrace far-reaching reforms that would enable it to take on a pivotal role in the reconfigured financial regime. Specifically, it will have to liberalise its capital account and integrate fully into the world financial system.
If such a future sounds far-fetched, look at Asia. Here, a China-centric order is already taking shape.