Editorial: Trade-war debt bubble red alert

Troubling news from the trade-war front lines: the two major combatants are far from well.

On the North American side, the Donald Trump regime, busy embracing former Cold War adversaries at the expense of U.S. intelligence integrity, has been applying tariffs with little regard to long-term economic impacts at home and abroad, thereby driving up the price of imported goods for America’s citizens. Its recipe of playing to the masses with tariffs and tax cuts without corresponding reductions in government spending promises to inflate a public debt that, already staggering before Trump was voted into office, will balloon to unmanagable proportions for a nation that continues to spend well beyond its means.

Meanwhile in China, economic fundamentals are also a concern.

A recent Nairu Capital analysis under “The $42 Trillion Bubble” headline outlines a disquieting summary of the debt load on the Asian side of the no-win trade war.

It cites several ominous financial indicators. For example, China’s total debt load is approximately 300% of its GDP.

Real estate, which has become increasingly critical to the wealth equation in China, is estimated to be overvalued by around 70%.

The relative illiquidity of that asset means that, in a country with one of the world’s lowest wealth diversification quotients, its economic house of cards is extremely fragile, regardless of what political system it operates under.

Much of the world depends on the economic engines of China and the United States to drive the global economy, but if one or both veer over the financial cliff, the collateral damage elsewhere will be massive.

The trade war escalation spearheaded by the Trump regime might play well in areas with limited knowledge of how the world economy works today, but its realities for a global economic momentum that is already slowing and standards of living all too often taken for granted are far less palatable, especially in the long run.