Europe has been the main victim of the U.S.-China trade war, for the same reason it was the main victim of the 2008 financial crisis, which also originated in the U.S. While the U.S. and China are stimulating their economies to counteract the trade slowdown, the European authorities are, as usual, responding with exactly the wrong policies. Instead of easing monetary, fiscal or credit policies, the eurozone response is “pro-cyclical.” The European Commission is trying to force Italy to reduce public spending and raise taxes. Germany’s finance ministry is using lower-than-expected budget surpluses as an excuse to squeeze investment and delay tax cuts. And bank supervisors are forcing banks to tighten their credit standards, increase loss provisions and cut lending to preserve capital.
Such policies condemned Europe to spend most of the post-crisis period in recession or near-recession, while the U.S. and China enjoyed a decade of uninterrupted growth. If similarly foolish policies are maintained, the same thing will happen again.
Anatole Kaletsky is chief economist and co-chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the Financial Times, he is the author of "Capitalism 4.0, The Birth of a New Economy," which anticipated many of the post-crisis transformations of the global economy.