KBRA Reports on "Deteriorating" US-China Relations

In a report titled Trade Tariffs and the Challenge to Pax Americana, Kroll Bond Rating Agency (KBRA) discussed current global trade conflicts in the framework of the challenge to Pax Americana. According to the report, common ground is being found between the United States and certain trade partners such as the North American Free Trade Agreement (NAFTA) countries and the European Union (EU), blocs that do not pose an immediate threat to the global order. However, relations with China continue to deteriorate, and a middle ground will be much harder to navigate, according to the report.

The report briefly outlined Pax Americana as the current international order arising post-World War II. Following Pax Britannica, Pax Americana was established as an internationalization strategy and is an extended period where the United States has been the dominant global economic power. Currently, according to the report, the main threat to Pax Americana is China.

The report also outlined the multifaceted nature of the historical and current US/China trade conflict, citing "economic priorities and issues of trade equality" as well as the threat to Pax Americana as drivers of the current trade conflict. In the context of China's rising strength, the current "trade conflict" broadly centers around US efforts to regain control by using its considerable leverage while ensuring that it chooses the "rules of conduct," said the report.

The report went on to say that supplanting Pax Americana with Pax Sinica is nonetheless restricted by limitations in China's rule of law, transparency, and institutional development. According to the report, China's current economic and financial challenges include the following.

• Secular slowdown of Gross Domestic Product growth
• Overleveraged corporate sector
• Lack of capital market depth
• Financial repression
• Loan problems in Chinese banks

Further, the report said that geopolitical factors also limit Pax Sinica for the fact that China's "regional neighbors are wary of its expanding sphere of operations, especially in the South China Sea, and are arguably more comfortable with US dominance despite its shortcomings."

According to the report, "KBRA expects it will be more difficult to find common ground on trade with China than with NAFTA partners and the EU due to the overarching theme of the challenge to Pax Americana posed by a rising China."

Complimentary access to the full report, Trade Tariffs and the Challenge to Pax Americana, is available on the KBRA website with registration.