Sander Tordoir

The US has long been the consumer-of-last-resort. China's consumption is depressed. I sympathise with US policy-makers who fret about the perpetual dance of Chinese debt-fuelled capacity expansion meeting US debt-fuelled consumption expansion. But blowing it all up... 2/

...isn't a smart way to tackle this problem. There are huge risks: the US may now choke the global economy of end demand suddenly - risking a scramble. Imagine a dinner table where the US suddenly pulls three chairs - triggering panicked musical chairs. 3/

Countries will be tempted to engage in aggressive currency devaluations and protectionism to capture scarce demand. History shows the result of beggar-thy-neighbour galore could be disaster. Humanity (=US) invented international economic policy coordination to avoid it. 4/

But that policy coordination itself is under severe pressure between the vagaries of Mr Trump and Mr Xi Jinping. Let's not forget that the US is also contemplating the IMF/World Bank. EU policy-makers also worry the Fed's global dollar liquidity lines may get cut. 5/

So, unless the US administration reverses course, it’s a pretty dangerous moment for the global economy. Can the EU coordinate with others to step in? Will it be enough as everyone gets caught between the Chinese hammer (overcapacity) and US anvil (tariffs)? 6/

Germany is unleashing the fiscal spigots, and switching to domestic demand-led growth. This will help, but Germany isn't big enough to fill a global demand hole alone. Only China (post-GFC) and the US (post-Covid) can move the needle there - but will they this time? 7/

If the US also erodes the global financial stability safety net, it could get even uglier. The ECB, PBoC, BOJ and other major central banks will have to get get creative to fill the void. A tall order to get that kind of coordination on the road without US leadership. 8/8