Protectionist USA, Debt Bubble Soon to Burst in China?

Dear Reader,

The US President Donald Trump announced new protectionist measures in order to further the interests of US producers and enhance US employment. As is obvious from the news, Europe and China will follow with retaliatory protectionist measures. I forecast global trade will diminish henceforth and this will slow global growth. If a full scale trade war erupts between USA and China this will seriously disrupt the supply chains of many global corporations. Apple is a case in point. Its products(IPhones, Ipads and Macs) are basically manufactured in China by Foxconn.

If a global trade war erupts this will hurt global growth, but it should not cause a recession. I forecast the next recession will  again have financial roots and it will be invoked by too much leverage in the financial system.

China is an interesting case. The Chinese economy, both corporate,consumer and state has too much debt. Shadow banking disguises the leverage, so the debt load is even bigger. I forecast sooner or later there will be an abrupt end of the Chinese economic growth an the economy will suffer a severe recession and will grow much slower after that. The Chinese GDP could fall by something like 10% before it resumes its growth again. That should not necessarily be a huge problem, since the Chinese economic system will clear its high debt load and start growing on a fresh note.

So I think the next global recession can be caused by the China debt bubble bursting. The high growth of Exchange traded funds which now proliferate in financial markets will exacerbate the crises. That said, I do not think in the next 2 years there will be a global recession. So the current economic cycle of growth should prove the longest in history, albeit with a reasonably slower growth of GDP.


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Kind regards,
Petar Posledovich