Global markets are riding high on hopes of a strengthening global economic expansion in 2025. They're in for a rude awakening. The world's two largest economies are set to export disruption to everyone else this year, short-circuiting the global recovery and accelerating geoeconomic fragmentation.
China's economy is experiencing its weakest performance in decades (please see last year's Top Risk #6: No China recovery). A deepening property crisis, mounting debt, and collapsing confidence have exposed the limits of Beijing's growth model. Rather than make painful reforms to boost household consumption, Xi Jinping is doubling down on what China knows best: exports. Chinese factories are churning out far more cars, solar panels, and electronics than the domestic market can absorb. The result is an overcapacity problem that China is trying to dump abroad, with its trade surplus already exceeding $1 trillion and growing.
Enter Donald Trump. The president-elect's plan to use tariffs to fix “unfair” practices against America will pour fuel on an already combustible situation (please see Top Risk #4: Trumponomics). Though they will often succeed at extracting concessions (please see Red herring: Trump fails), his tariff threats will sometimes trigger retaliation, as in the case of China (please see Top Risk #3: US-China breakdown). Trump's policy mix will also strengthen the dollar and keep US interest rates higher, increasing pressure on the rest of the world when it's least equipped to handle it.
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