How should outsiders want the trade war between the US and China to end? They should want both to lose.

True, Donald Trump’s approach is far worse than intellectually incoherent: it is lethal for any co-operative global order. Some people think a collapse of such “globalism” is even desirable. In my view, it is foolish to imagine that a world run by predatory “great powers” would be superior to the one we have. Yet, while Trump’s protectionism has to lose, Chinese mercantilism must not win, since it, too, creates substantial global difficulties.

To understand the problems the world economy faces it helps to start from the topic of “global imbalances”, which was much discussed in the run-up to the global and Eurozone financial crises of 2007-2015. In the years since, these imbalances have grown smaller but the overall picture has not changed. As the IMF’s latest World Economic Outlook notes: China and European creditor nations (notably Germany) have run persistent surpluses, while the US has run offsetting deficits. As a result, the US net international investment position was minus 24 per cent of global output in 2024. Since the US runs trade and current account deficits and has a comparative advantage in services, it also runs large deficits in manufacturing.