While financial markets and international organizations keep whining about global gloom and doom, more than half of major world economies have a considerable amount of fiscal and monetary space to strongly stimulate their demand and output.
Why aren't they doing that?
Inept economic management is one of the possibilities, but the experience shows that they just want to hitch a free ride on the "locomotive U.S.A."
That's called beggar-thy-neighbor mercantilism of export-driven growth economies.
The U.S. should speak loudly and act forcefully against that sort of behavior. Washington has been the chief architect and underwriter of global forums like the G-7 and G-20, as well as organizations like the International Monetary Fund and the Organization for Economic Co-operation and Development designed to promote a stable and balanced world economy.
The evidence shows that those forums and organizations failed to live up to that key objective.
East Asia has room to stimulate growth
Although Washington bears a large part of the responsibility for that, the present U.S. administration may be forgiven for resorting to bilateral deals for quick relief from highly damaging trade deficits with China, the European Union, Japan, Mexico and Canada. That group of countries account for $481 billion, or 82.3%, of America's goods trade deficit in the first eight months of this year.
So far, the results of that negotiating strategy have been negligible, because the U.S. deficit with those countries has been reduced by only $0.8 billion, compared with the same period of 2018, mainly as a result of a $30 billion reduction in China's surpluses on U.S. trades.
The U.S. and China still have a long way to go to balance their bilateral trade accounts, but Beijing realizes that such a process serves the interests of its economy. Apart from that, excessive trade surpluses with the U.S. are hindering the leading role China has to play in promoting growth and stability of global commerce and finance.
So, in addition to solving its trade problem with the U.S., China is also making efforts to stabilize the economy by stimulating internal demand rather than waiting for a free ride on its trade partners. Beijing is now doubling its huge spending on infrastructure investments, and there is an apparent policy intent to maintain a broadly accommodative monetary stance.
That is much more than one can say about Japan. Tokyo's trade surplus on American goods trade rose 6.3% in the first eight months of this year. More is in store, given the friendly trade deal it got from the U.S. and the fact that its weak economy will continue to rely heavily on net exports.
Japan, however, can do more for itself. Its huge public debt (255.5 % of GDP) should not be an excuse for doing nothing; that debt is yen-denominated and almost entirely owned by Japan's residents. A relatively small budget deficit of 2.5% of GDP and an extremely loose monetary policy offer plenty of room to step up public spending on IT, family formation and welfare programs for an aging society, instead of remaining excessively dependent on export-driven economic growth.
Europe has the means to grow strongly
South Korea is another example of a major Asian economy in need of a strong policy support. Economic growth in the first three quarters of this year slumped to an annual rate of 1.9%, from 2.6% in the same period of 2018, and is moving along well below the 2.2% growth officially forecast for this year as a whole.
Seoul's budget surplus and a very low public debt of 43% of GDP provide ample space for a strong fiscal stimulus, while the price deflation signals a need for a vigorous and sustained monetary easing.
Major Southeast Asian economies like Indonesia, Thailand and Singapore also have substantial room to expand government spending and to cut credit costs in view of low budget deficits and stable prices.
China's vigorous stimulus to its domestic demand is an example for Asia, and beyond, to support growth with appropriate counter-cyclical fiscal and monetary policies.
Europe should hear that message – but the call should come from Washington, after a strong pleading by Mario Draghi, the outgoing president of the European Central Bank. For the nth time, Draghi called last week for a relaxation of the euro area's – read Germany's — fiscal policies, instead of relying on cheap credit to keep the monetary union afloat.
But all that will fall on deaf ears unless Washington steps in to remind Germany – a country with large trade and budget surpluses – to get off the back of its trade partners, and to stop shrinking the European markets taking one-fourth of America's goods exports.
Washington can easily do that by hitting German manufacturers that are currently pushing up the U.S. deficit with Germany at an estimated annual rate of $74 billion – a 9% increase from 2018.
Investment thoughts
The U.S. and China – accounting for more than one-third of the world economy – are coming to terms on their trade problems and are contributing to global demand and output by maintaining strong domestic spending.
China has much more room to maneuver because the U.S. is constrained by overextended public finances and an excessive monetary stimulation. It is encouraging, therefore, to see that China is using its considerable resources to strengthen domestic demand and to open up to global flows of trade and finance.
By contrast, Europe and some major East Asian economies are a drag on the rest of the world with their export-driven growth policies.
The U.S. must stop that. Washington can force the European and Asian mercantilists to change their ways through bilateral channels and multilateral forums offered by G-7, G-20, the IMF and the OECD.
Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.