In need of a silver lining

Present trends cast dark clouds over the prospects for the global economy over the next decade

The world economy is forecast to grow by 3.2 percent in 2024, down slightly from 3.3 percent in 2023, according to the latest World Economic Outlook published by the International Monetary Fund. The report projects that developed economies will expand by 1.8 percent in 2024, while emerging markets and developing economies will grow by 4.2 percent. The better-than-expected estimates reflect the resilience of the global economy, particularly the developed economies. It shows the United States and Europe have, in a sense, achieved a soft economic landing.

The recovery in world trade is both a key driver and a consequence of the better-than-expected performance of the world economy. According to the World Trade Organization, the global trade volume is projected to increase by 2.7 percent in 2024, a robust rebound from the negative 1.1 percent recorded in 2023.

Looking forward, there are several issues that will impact the global economy in 2025.

The first is the economic policy that the US will adopt after Donald Trump takes office. Trump has said he plans to impose tariffs of 25 percent on products imported from Canada and Mexico, and threatened to extend the tariff list to US partners and allies. However, it is the deteriorating China-US relations that are viewed as a grave threat to the world economy.

Jamieson Greer, who has been nominated by Trump as the next US trade representative, views China as a "generational challenge" to the US.Trump has already vowed to raise tariffs by an additional 10 percent on all Chinese goods entering the US, and said he would consider a tariff of up to 60 percent on Chinese products.

These policies will have a profound impact not only on China, but also on the entire world. As the world's leading economic power, the US with the new Trump administration's economic policies will have huge global ramifications.

Second, multilateral mechanisms such as the WTO are being marginalized. Despite some progress made in the recent WTO ministerial meeting, it is a mechanism that is increasingly being sidelined by major developed economies. For example, the US and Canada, in disregard of the WTO's rules, have levied 100 percent tariffs on Chinese electric vehicles, while the European Union is also negotiating with China over additional tariffs on Chinese EVs.

A recent WTO report suggested that the organization's capacity to safeguard free trade is declining: unilateral trade restrictions adopted by member states sharply expanded from October 2023 to October 2024, with the trade value involved rising to $887 billion, a year-on-year increase of $550 billion.

In addition, Trump threatened to withdraw the US from the WTO during his first term, which he may put into practice after being reelected. The gloomy outlook for the global trade system is not an isolated case in the waning global multilateral governance system. In November, two important ceasefire resolutions were vetoed at the United Nations Security Council by two different permanent members, reflecting the impotence of the global governance system to coordinate international relations.

It is true that some consensus was reached at the G20 summit in Rio de Janeiro and the COP29 climate conference, indicating that multilateralism is still alive, but its influence is waning and its binding force is weakening. In key economic and political realms, multilateralism has been paralyzed to some extent, and in some other areas it plays only a limited role.

Third, the global supply chains are being restructured to "supply clusters". In its Rise of Discriminatory Regionalism report, the IMF said that major economies including the US and Europe are pushing for regional economic integration, with the number of regional trade agreements increasing from nearly 50 in 1990 to more than 350 in 2023. But without the support of multilateralism, regional trade agreements will become more discriminatory and eventually turn into trade barriers, especially as competition between major powers escalates.

The World Openness Index, compiled by the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, has recorded a decline for three years. The index underlines the damage done to the openness of the global economy by the supply chain restructuring policies of some developed economies, including "nearshoring", "on-shoring" and "reshoring".

Fourth, artificial intelligence is having a profound and far-reaching impact on the economy. AI technology is expected to increase the global output by 7 percent over the next decade by improving productivity. It will make our lives easier. At the same time, its impact on the labor market is becoming more and more prominent. While low-skilled workers bear the brunt of job losses, some high-skilled workers also face the pressure to adapt to the era of AI.

The world is facing problems such as a growing shortage of high-skilled jobs, the widespread use of AI and smart robots, an accelerating aging population and declining birthrates, and the consequential financial strain on pensions and healthcare programs.

Fifth, non-economic factors are having a growing impact on the world economy. According to the Global Risks Report 2024 released by the World Economic Forum, among the 10 most severe perceived risks over the next two years, seven are non-economic ones: misinformation and disinformation, extreme weather events, societal polarization, cyber insecurity, interstate armed conflicts, involuntary migration, and pollution; while only three are economic risks: lack of economic opportunity, inflation, and an economic downturn.

As for the most severe global risks anticipated over the next decade, the economic risks are all replaced by non-economic ones, which are critical changes to Earth systems, biodiversity loss and ecosystem collapse, natural resource shortages, and adverse outcomes of AI technologies.

The National Security Strategy released by the Joe Biden administration in October 2022 said that the world is now in the early years of a decisive decade in which the terms of geopolitical competition between the major powers will be set. Given that the incoming Trump administration will probably inherit its predecessor's judgement of the global landscape, we should not be optimistic that the next decade will be a peaceful period.

The world economy is expected to continue growing at around 3 percent for the next few years. But the risk of economic slowdown due to extreme events cannot be ruled out. As for China, in the face of high risks and uncertainties, particularly the possible negative outcomes of the US' China policy, it should objectively evaluate external factors and remain committed to its own development path.

The author is an academic member of the Chinese Academy of Social Sciences and dean of the School of International Politics and Economics at the University of Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily.The views do not necessarily reflect those of China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.