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Presidential Issues: Economic Growth

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5 questions every presidential candidate should answer on the global economy

February 10, 2016

By Desmond Lachman

Recent turbulence in the international financial markets suggests that the global economy may see a significant downturn running up to the November elections. That in turn could have major implications for the US economic recovery, as well as the election.

Our 2016 presidential candidates must weigh the following five issues, and be able to provide cogent policy solutions for them:

  1. How should the United States engage China in seeking solutions to that country’s major economic imbalances?

After many years of very rapid growth, the Chinese economy is now slowing abruptly. It is doing so as it tries to transition away from an unsustainable model of excessive investment-led economic growth, a model that has resulted in property bubbles and massive excess capacity in manufacturing. Over the past year, China’s economic slowdown has contributed to a collapse in international commodity prices that is in turn causing acute difficulties for the oil producing economies and for most countries in Latin America and Africa. At the same time, China’s decision last August to allow its currency to depreciate has sent shock waves through international financial markets.

As the world’s second largest economy, Chinese economic developments will have a major bearing on the US and world economic outlook in 2016. A major challenge for the Chinese economy in the year ahead will be to stem its massive capital outflow — amounting to around US$800 billion over the past year. There is the real danger that in the absence of US leadership to coordinate global economy policy, further depreciation of the Chinese currency (as a response to a slowing Chinese economy and to capital outflows) could trigger a destructive global currency war that could derail the US economic recovery.

Read the full article at the American Enterprise Institute: 5 questions every presidential candidate should answer on the global economy