The State of the Global Economy
This report discusses the state of the global economy, and dives deeper in to the assigned topic to understand how we should move forward, and avoid future pitfalls. Global growth experienced a weakening across the globe in second half of 2018. This weakness was related to wide array of contributing factors from trade tensions to normalization of interest rates with Federal Reserve raising interest rates in U.S. All these factors led to global weakening.
How bad is the problem of trade?
Trade faces a enormous risk to global outlook and should be weighed in heavily. Trade carries major implications for not just U.S. and China, but also globally impacting the world economy. Broadly speaking, we have witnessed investments slowing down, and future projections for trade tend to be weakening.
President Trump imposed tariffs expects China to foot the bill
Analyzing the price of goods coming from China for which tariffs were imposed upon, the prices excluding tariffs have not changed. What this means is all of tariff revenue that has been thus far collected is being borne by U.S. imports. U.S companies that continue to buy from China are paying the price of those tariffs.
High expectations that trade would be good for the global economy failed in its objective. Understandably, we were aware of the rising challenges faced through distribution, meaning there would be always a demographic or geographically deprived population that would not be able to fully gain from trade. For example, wealth and income equality among people across the world have lost their economic livelihood and jobs. We are leaving these people behind.
US debt is on unsustainable path
US debt is on an unsustainable path to an important degree with all these liabilities related to pension and high health care costs, all this is going to further add to the growing deficit. Taking in to account the impact from a medium to long term perspective. We should not solely rely on the safe assets, U.S. treasury is considered to be the safest in the world, this is one of the reasons why the U.S. government continues to borrow at incredibly low rates.
The Delicate Moment
Global projections estimate a slowdown in the next 2-3 years, this can be avoided if the trade tensions deescalate, and Brexit ends up with a deal. Notably, we are living in a world with high levels of debt in both the public and private sectors and this is deeply concerning.
How can we increase competition?
We need policies to address wealth and inequality, knowing that one size does not fit all, and that there is a combination of polices. For instance, some countries can reform their re distributive tax system, offer better skillful programs. Additionally, addresses challenges related to mobility, particularly where jobs exist. Most importantly, everyone pays their fair share of taxes.
Effect of automation and artificial intelligence on jobs
There have been technological improvements in the past decades, as the world economy has grown, we have seen increase job growth due to automation. We are living in time period, where parts of the world have, and will continue to experience full employment, this is largely due to automation and artificial intelligence. What is most important is too prepare people and make them ready to tackle the challenges posed by increased automation.
Policies related to trade and Brexit is taking a toll on the economy. Issues of inequality are macro critical they have implications for growth today and for the future outlooks. Furthermore, issues related to climate previously thought of as being way out there in the horizon is not the case anymore. As the world continues to witness increasingly greater natural disasters, we need to consider the financial institutions, such as the IMF and the World Bank and other similar institutions that are directly involved in borrowing and lending to countries in crisis. These institutions are susceptible to these kinds of risks, and are closely related to the issues discussed in this report.