● Tariff Truce: Mutually Assured Destruction Averted

Adjusting the Consumption-Production Imbalance Between the US and China: A Major Shift in Global Economic Flows

The Stark Contrast in Consumption and Production Patterns Between the US and China

The US economy serves as an engine for global economic growth, driving global demand through consistent consumption.
Conversely, China has been a production-centric economy, acting as the ‘world’s factory’ by supplying a vast amount of goods and services worldwide.
In this structure, the US’s consumption overwhelmingly exceeds its production, while China, conversely, has accumulated trade surpluses with production surpassing consumption.

The Global Economic Risks of Trade Imbalances

Excessive trade imbalances amplify systemic risks inherent in both economies.
The US endures chronic deficits but has been able to sustain this due to the dollar’s status as the reserve currency.
China suffers from weak domestic consumption, leading to persistent overproduction, resulting in global oversupply and price distortion issues.
In the long term, this structure carries the risk of global financial instability, heightened trade wars, and reduced growth potential.

Full Adjustment Scenario: Contraction in Both Consumption and Production

What if the US reduces consumption, and China reduces production?
In this scenario, both economies could face significant contractions simultaneously, including a slowdown in US economic growth (recession) and a sharp drop in China’s growth rate (reduced factory operating rates, large-scale unemployment).
Global trade and growth would also halt, leading to a ‘lose-lose’ game.
In reality, such an extreme adjustment is the worst outcome that both countries want to avoid.

Cooperative Adjustment Scenario: Increased US Production, Expanded Chinese Consumption

Conversely, what if the US increases domestic manufacturing investment and production, and China strengthens its domestic consumption expansion policies?
The US can increase the proportion of ‘production’ by focusing on fostering new businesses and high-tech industries.
China can increase domestic consumption through increased income for the middle class, activation of the service industry, and well-being trends.
In this case, healthy circulation is possible in the world economy, complementing each other’s shortcomings.
This would also send positive signals for global supply chain diversification, economic cycles, and trade war mitigation.
The recent trend is interpreted as policy expectations for this direction (scenario 1), as cooperation between the two countries can lead to a “Win-Win” situation.

Recent US-China Agreements and Prospects for Normalizing Global Imbalances

Recent economic news and policy trends indicate that both the US and China are demonstrating a willingness to reduce trade imbalances and improve their respective economic structures.
The US is accelerating efforts to strengthen its production capacity through reshoring and fostering the semiconductor/electric vehicle industries.
China is attempting to strengthen domestic demand through new industry cultivation such as IT services and healthcare, consumption promotion policies, and rural income improvement.
Collateral effects such as trade balance normalization, global supply chain stabilization, and exchange rate volatility reduction are also expected.

This recent US-China agreement should be understood not as a one-sided sacrifice, but in terms of the big picture of economic restructuring and maintaining global balance.
In the future, global economic growth is expected to hinge on 'normalization of trade imbalances' and 'structural cooperation' as key keywords.

< Summary >
The US was a consumption-driven economy, and China was a production-driven economy, resulting in an extreme trade imbalance.
If the US reduces consumption and China reduces production, both will face a recession (bad scenario); the best is a balanced adjustment where the US increases production and China increases consumption (good scenario).
Recent US-China policies are moving towards normalizing trade imbalances and structural cooperation, which is emerging as a key factor in resolving modern global economic risks and driving growth.

[Related Articles…]

• Analysis of Global Trade Wars and Supply Chain Changes
• Prospects for US-China Economic Cooperation and Emerging Industry Growth

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● Inflation Shock?

<h4>2024 U.S. CPI Announcement, Tariff/Exchange Rate/Interest Rate Pressures, and Global Economic Impact</h4>


<p>
This article summarizes everything from the immediate impact of the <b>April 2024 U.S. CPI (Consumer Price Index)</b> data to the real impact of the Trump administration's tariff and exchange rate policies on the global economy and financial markets, and the possibility of a global currency war surrounding the "Mar-a-Lago Accord."<br>
In particular, it clearly outlines the key issues of the past 40 years of world trade order, including the expected exchange rate pressures after the tariff war, the future outlook for interest rate cuts, and the impact on major countries such as South Korea, in chronological order.<br>
With this single article, you can quickly summarize key topics such as the U.S.-China hegemonic competition, the global currency war, recent inflation trends, the U.S. interest rate cut scenario, and overseas investment strategies.
</p>


<h3>1. April U.S. CPI Announcement and Interpretation</h3>


<p>
As a result of the April 2024 U.S. CPI (Consumer Price Index) announcement, the <b>inflation rate was 2.3%</b> (2.4% in the previous month), and the <b>core inflation rate was 2.8%</b>, recording the lowest inflation in recent years.<br>
It also fell short of market expectations. Despite the ongoing tariff war, inflationary pressures appeared very limited.<br>
Characteristically, only food prices rose slightly by 2.8%, reflecting the direct impact of tariffs. On the other hand, energy prices have further solidified their downward trend. Core service prices (especially housing cost increases) have not yet been fully contained, but are on a downward trend at 3.6%.<br>
All major inflation indicators have significantly increased expectations for the <b>resumption of interest rate cuts</b>.
</p>


<h3>2. The Structure of the Tariff War and Changes in the 2024 Economic Order</h3>


<p>
The U.S.-China trade conflict intensified from Trump's first term in 2018-19, and in 2024, the trend is to expand the main target from China to all major countries when Trump is re-elected.<br>
Recently, large-scale tariffs on China, steel, and automobiles have started operating since February. The impact was first reflected in the April price data.<br>
Tariff increases lead to <b>global supply chain restructuring</b> and investment slowdown. However, excessive tariffs rather lead to a contraction in the global economy and a decrease in demand for raw materials, resulting in downward pressure on energy, raw materials, and producer prices (PPI).<br>
In other words, the tariff effect stimulates 'consumer prices' while the overall price increase is limited due to the contraction of the global real economy sentiment.
</p>


<h3>3. The Second Plaza Accord (Mar-a-Lago Accord) and Currency War Scenario</h3>


<p>
In the 1985 Plaza Accord, the United States artificially induced a strong yen (dollar weakness) to prevent the growth of Japanese manufacturing when Japan followed up to 73% of the U.S. GDP.<br>
As a result, Japan went through 30 years of lost time. Currently, China is catching up to 77% of the U.S. GDP.<br>
The <b>Miranne Report</b>, centered on the Trump camp, presents "recovery of U.S. manufacturing industry and export competitiveness," "reduction of trade imbalances and fiscal deficits," and "resolution of structural risks caused by a strong dollar."<br>
Recognizing the limitations of tariffs, there is a high possibility that <b>exchange rate pressure (inducing dollar weakness, appreciation of counterpart currencies)</b> will begin in earnest.<br>
The term "Mar-a-Lago Accord" is naturally circulating in the market. (Nickname derived from the name of Trump's resort)
</p>


<p>
However, unlike the unilateral multilateral agreement (Plaza Accord) in the 1980s, the global trade and security order in the 2020s shows a pattern of competition between emerging powers such as China and the EU and all-out hegemonic competition. In other words, (1) exchange rate agreement through international cooperation, (2) U.S. independent unilateral pressure (regulation of foreign exchange reserves, etc.) may be pursued in parallel.
</p>


<h3>4. Triffin Dilemma, Interest Rate Policy, and Global Economic Impact</h3>


<p>
<b>Triffin Dilemma</b> (contradiction of the key currency country): The dollar plays a role in supplying global liquidity and foreign exchange reserves → leading to U.S. manufacturing and trade deficits.<br>
Feasible solutions are (1) pressure to appreciate other countries' currencies, (2) long-term structural adjustments mobilizing tariffs + security.<br>
In 2024, the U.S. financial market and the Fed have frozen interest rates → expectations for a June cut have greatly increased. If the PCE core inflation rate enters below 2.5%, the possibility of a June cut is expected to surge.<br>
Global investors and exporters/importers should actively prepare for <b>exchange rate volatility risk</b>.
</p>


<h3>5. Outlook and Investment Points for the Second Half of 2024 ~ 2025</h3>


<p>
If the tariff war gradually eases, there is a high possibility that U.S.-centered exchange rate pressure (dollar depreciation, pressure to appreciate Asian currencies such as the Korean won) will begin in earnest.<br>
In particular, major countries such as South Korea need not only changes in the U.S. trade structure but also new strategic asset defense cards such as "permanent currency swaps (currency safety nets)."<br>
Coupled with the Fed's interest rate cut announcement in June-July, the movement to expand volatility in the world financial market is expected. It is necessary to focus on risk management in export-oriented industries/industries with many foreign currency debts.<br>
In terms of global investment strategy, <b>slowing inflation, interest rate cuts, and increased exchange rate volatility</b> are expected to become key keywords that will begin in the second half of 2024.
</p>


<h3>&lt; Summary &gt;</h3>


<ul>
<li>The U.S. CPI in April recorded 2.3%, the lowest inflation in two years, raising expectations for interest rate cuts.</li>
<li>Limitations of Trump's tariff policy → Global hegemonic competition centered on the "currency war" will begin in earnest in the future.</li>
<li>Major countries' foreign exchange and export strategies are rapidly changing in the historical repetition structure such as the Mar-a-Lago Accord and the Triffin Dilemma.</li>
<li>Second half of 2024: Active risk management is necessary for changes in global exchange rate and interest rate policies.</li>
</ul>


<h3>SEO Optimized Summary</h3>


<p>
Comprehensive analysis of the global trade and investment environment, currency swaps, inflation, and exchange rate prospects based on the April 2024 U.S. CPI (Consumer Price Index) data, the flow of the Trump tariff and exchange rate war, the global hegemonic war, the Plaza Accord/Mar-a-Lago Accord, and key economic keywords such as interest rate cut prospects.<br>
This content is optimized for core keyword searches such as global economy, currency war, inflation, trade conflict, and interest rate cuts.
</p>


<h3>[Related Articles...]</h3>
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</ul>

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