There are two forms of “softening” that can happen after a streak of economic inflation.
Deflation and Disinflation. One is bad, one is “good”, at least in terms of economic health.
The US is experiencing Disinflation, which is the slowing of price growth, ideally putting it at pace or slower than wage growth. Disinflation is “good” because it means demand is still strong, and that hiring will remain strong (hopefully).
Deflation is rapid declines in prices, which sounds good but it is because of demand destruction, which often coincides with layoffs and slowdowns in hiring.
This is what’s happening in China. The Reds are in the red as they are caught in a nasty Deflation spiral. Demand destruction is cutting back jobs and wage growth, leading to more demand destruction as consumers spend less.
And with their real estate market sputtering hard…
China is likely heading into a deep recession.
The weird part is, most of the time where China goes so goes the US, but that’s not happening this time. There are multiple factors as to why, but it does give credence to the idea that it might not actually be impossible for the US to decouple from China.
I absolutely hate to give any life to the “Let’s have a trade war” Republicans out there…but they’re not entirely wrong that the US might be better off pulling back from the Chinese market.
To be sure it would still hurt, especially since China will almost certainly pull US debts if they sensed we were pull out of the market.
But…that’s the fun part…who would be able to collect? The funny thing about sovereign debt is that there isn’t actually any way to force collection. And negative ramifications require the market to basically self-enforce. If the rest of the western market just kinda shrugged their shoulders and said “thems the breaks” to China, and kept happily working with the US, there wouldn’t really be any major issues. What’s China going to do? Threaten to pull out with the nation’s that keep doing business with the US and risk even more economic damage? Invade? Neither option is really feasible.
China would seize US assets in China, but if we were decoupling we would likely sell them off anyway to cover our debt.
Decoupling from China the moment they sink into a deep recession is the perfect opportunity to finally sever ourselves from them.