On Wednesday, June 11th, Christine Lagarde, President of the European Central Bank (ECB), made a rare visit to Beijing. During her visit, she emphasized that the United States and China must share the burden of reducing the massive trade deficit, and China must change its trade practices, or else the world economy will fall into a new recession.
Lagarde met with local bankers and discussed matters concerning the Chinese economy and expanding cooperation during her visit to Beijing. She delivered a speech at the People’s Bank of China, citing examples of economic crises triggered by 20th-century trade practices. She stressed that the US and China must jointly tackle the responsibility of narrowing the significant trade deficit, as such imbalances could tear apart the global economy.
“If we are serious about maintaining prosperity, we must seek cooperative solutions, even in the face of geopolitical disagreements. This means both surplus and deficit countries must shoulder their responsibilities and play their respective roles,” she said.
Lagarde stated that the US and Europe will not allow China to destroy local industries by deliberately dumping products into the global market.
“Considering national security and experiences during the pandemic, a certain degree of risk diversification will continue. Few countries are willing to remain heavily reliant on others in strategic industries, especially when they perceive unfair trade practices from the other party,” she added.
She also emphasized that all countries must take responsibility and change policies that lead to oversupply, as trade barriers and potential retaliatory measures could erode global economic growth.
Since 2014, global subsidies supporting domestic industries have doubled, Lagarde added.
According to Reuters, China extensively uses subsidies to support exports, drawing criticism for distorting competition.
Lagarde warned that protectionism poses a risk of “eroding the foundation of global prosperity.”
Her visit comes at a crucial moment for the world economy, as President Trump is attempting to reshape the global trade order by imposing a series of tariffs on trading partners. In the past two days, US officials met with Chinese officials in London in an effort to break the deadlock in tariff negotiations.
Lagarde also mentioned the tariff wars that led to the Great Depression, warning that “coercive” trade policies would worsen everyone’s situation. She pointed out that during the post-crisis period, the US and its trading partners had a shared geopolitical responsibility of winning the Cold War, which motivated them to resolve disputes.
By contrast, she implied that there are no such constraints on the US-China relationship today, which only makes the global economic situation more precarious, as international trade and supply chains play a larger role than ever before.
Next month, China and the European Union will hold a summit in Beijing to commemorate 50 years of diplomatic relations. According to official statements, they will discuss setting minimum prices for electric cars sold by China in Europe, as well as opening a “green channel” for exporting rare earths to the EU’s 27 countries. China is seeking to ease tensions with Europe.