Growth rates in Asia have proven to be remarkably resilient so far. While the ongoing blockade of the Strait of Hormuz is certainly a cause for concern, I believe this could end very soon. If that happens, we can expect another significant upturn in the global economy, which still appears to be quite robust overall.
The continued strong performance of the Chinese economy has also contributed to the expansion of the global economy.
A return of inflation in China could also trigger a significant increase in prices in the US and Europe. People have become accustomed to the idea that China is a deflationary force. This is no longer the case, not least because of higher energy prices. Consequently, China is transitioning from acting as a brake on prices to exacerbating existing deflationary trends.
For the past five years, I have assumed that we are heading into a period of higher inflation and interest rates, and it seems I was right. Drastic changes in a short period of time, like those we saw five years ago, will be rather rare. Instead, I expect we will move upwards in a step-by-step pattern, though there will be repeated setbacks in interest rates along the way. Incidentally, I anticipate one such setback over the summer, provided that the conflict with Iran remains under control.
The Meeting with Trump
Trump’s meeting with Xi Jinping promises to be interesting. Last year, in response to tariff hikes, the Chinese made it clear to the US that they could impose equivalent tariffs without harming themselves. Furthermore, they have shown the U.S. that they can put much more pressure on them than vice versa. This is particularly true with regard to the availability of basic medical materials, magnets, and rare earth elements, without which American military dominance would be unthinkable. This is a reality that requires the U.S. to engage with its geostrategic challenger. This will necessitate a relationship of equals for several years to come.
Asia Is Coming Together
Intra-Asian trade grew by 10% last year, driven by U.S. tariffs, and this level of growth is expected to continue for some time.
There are many reasons for this:
- The West is no longer a role model. In some areas, it has actually become a cautionary tale
- The populations and economies of Asia and Africa are growing rapidly
- The West’s technological dominance is coming to an end. At best, we can only hope to keep up
- Greater cultural cohesion and reliable cooperation will help bring Asia closer together
Progress will vary in pace, but it will undoubtedly happen. Consequently, Asian currencies are expected to follow an upward structural trend against the USD in the short term
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