Investors and institutions such as the International Monetary Fund are fretting over the risk of a potential global recession caused by the U.S.-China trade war. Their concern is misplaced. The true danger to global growth is the weakness of China’s domestic economy.
Total U.S. trade isn’t declining. On the contrary, it’s growing at or just beneath its decade-long rate. A decline in shipments to and from China has been offset by increased trade with partners such as Vietnam and Mexico. In a broad global market where goods can easily be substituted, manufacturers will absorb price signals and move to different producers. That’s what is happening, as U.S. tariffs drive up the cost of importing Chinese products. The result is that there has been no net change to global trade levels from the U.S.-China dispute, even if growth has slowed sharply.
