We’ve had the argument that the major global issue of the 21st century is the growing trade and technology war between the US and China. In their book, Trade Wars are Class Wars, Klein and Pettis reckon that the trade imbalances are cause by inequality and income and consumption in the two powers: China has ‘excess savings’ and the US has ‘excess consumption’. I have argued that this argument is false in previous posts.
Now we have Capital Wars as an alternative scenario for the rivalry between China and the US. The rivalry between the US and China in the economic sphere has so far been on trade and technology. There has been little comparable friction in financial markets. Indeed, as more Chinese stocks are incorporated into global indices, US investors have been pouring capital into China via their investment in index-tracking funds.
Yet that is unlikely to last…
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