When Governments and the Global Economy Collide: What to Watch

Trade disputes between the United States and China (and other major economies). European regulators taking on tech giants over data privacy and antitrust concerns. Tariffs used as a bargaining tactic to advance noneconomic foreign policy.

These are fast times in the world of government impact on the global economy, and the ramifications are huge for the overall global economic outlook, as it might be clear to anyone observing wild oscillations on global stock markets rocked daily by news headlines and policymaking by Tweet.

Darden experts have been dissecting the intersection of government policies and the global economy for insights to interpret the broader picture amid the daily storm. Read on to uncover some of those key insights or explore the Darden Ideas to Action “Global Economic Outlook” collection for a deeper dive into the hot topics driving the global economy.

Don’t Let Tariffs Distract From the Real Issues Behind US-China Trade Dispute

The road for U.S.-China trade talks continues to be rocky, as it has been for months between the world’s two largest economic superpowers. And while much of the media remains focused on escalating tariffs, Darden Professor Dennis Yang in “Does Anyone Win in a US-China Trade War?” cautions observers to pay attention to what is really at stake in the trade talks. “On the surface, the central issue of the negotiation is the trade gap,” Yang said. “But the real core of the issue is intellectual rights protection, China’s state-sponsored industrial policies, and fairness and competition in technological advancement.”

A Set Up for High Inflation in the US?

Recent comments from Federal Reserve officials indicating a possible interest rate cut in July, despite what the Fed continues to call a strong U.S. economy, puts in play a scenario Darden Professor Frank Warnock detailed all the way back in January as President Donald Trump ratcheted up pressure for just such a rate cut. According to Warnock in “Considering Fed Actions in ‘Messy’ Times:” If the economy is as strong as the Fed appears to believe but President Trump succeeds in pressuring Fed Chair Jerome Powell to hold off or slow down tightening monetary policy, the result could be high inflation (and sharply higher borrowing costs). We’ve seen this play out before, in the 1970s when Richard Nixon pressured Fed Chair Arthur Burns in what became known as the Great Inflation.

Avoiding Economic Walls and Opening Doors in Mexico

In “Mexico: Doors Needed, Not Walls,” Darden Professor Kieran Walsh examines the economic and social reforms Mexican President Andrés Manuel López Obrador must pursue amid economic challenges faced from within and across the border with the U.S. For real prosperity, Walsh says, Mexico needs to do more than dodge the next crisis. It needs to find ways to propel itself out of the middle income trap, the economic plateau in which a country finds itself unable to compete with low-income competitors or advanced economies. Walsh says Mexico needs a new approach to become socially progressive, pro-business and a land of opportunity for more than billionaires.

How to Spot the Ripples of an Economic Shock

Darden Professor Bob Bruner in “Amid Strong US Economy: 3 Threats?” notes that a strong, sustained run for the U.S. dollar and resulting fall in some emerging market currencies has the potential to cause a global economic shock. Many countries with faltering currency are borrowing money denominated in U.S. dollars, Bruner says. Massive currency depreciation means that the costs of paying the debts spiral up when measured in local currency. Put simply, some countries have gone from swimming in debt to submerged in it. Bruner says an even larger problem would come if those countries stop paying the banks that lent them money. That would hit profits at financial institutions and could also hurt anyone who lent money to those banks. That’s how the crisis in 2007 spread across the world: from bank to bank to bank.