How the US and China Are Sabotaging the Global Economy

The global economy is increasingly becoming a casualty of the strategic rivalry between the United States and China. Instead of acting as stabilising anchors of the international economic order, the world’s two largest economies are pursuing inward-looking, protectionist and mercantilist policies. Their actions are disrupting global trade, fragmenting supply chains, and disproportionately harming developing countries. The result is a “G-Negative Two” world, where the actions of both powers impose economic costs on everyone else.

US Protectionism: From Free Trade to Economic Nationalism

For decades, the United States positioned itself as the champion of free trade and open markets. However, this posture has significantly weakened in recent years.

1. Tariffs as a Political Tool

The US has increasingly used tariffs not merely for trade correction but as instruments of domestic politics and geopolitical signalling. High tariffs on steel, aluminium, electronics, and other imports have:

• Increased costs for global exporters

• Distorted international prices

• Created uncertainty for long-term investment

Even US allies and developing nations have been affected, undermining trust in the global trading system.

2. Undermining Multilateral Institutions

The US has frequently bypassed or weakened multilateral frameworks like the WTO by:

• Blocking dispute settlement mechanisms

• Resorting to unilateral trade actions

• Redefining “national security” to justify trade barriers

This weakens rule-based global trade and encourages other countries to adopt similar protectionist measures.

Chinese Mercantilism: Export Dominance Over Global Balance

China’s growth model, though successful domestically, has created severe distortions globally.

1. Export-Driven Growth Model

China remains heavily dependent on exports, especially low-value and mid-value manufactured goods. Key features include:

• State subsidies to industries

• Managed exchange rates

• Preferential credit to exporters

This allows Chinese products to flood global markets, often undercutting local industries in developing economies.

2. Import Aversion

China’s economic structure prioritises production over consumption. Despite being a massive exporter, it imports relatively less, leading to:

• Persistent trade surpluses

• Limited market access for foreign firms

• Trade imbalances with both developed and developing countries

This mirrors historical mercantilist models where exports are maximised while imports are minimised.

Global Supply Chain Disruption

The US–China rivalry has accelerated supply chain fragmentation, marked by:

• Trade wars

• Technology bans and export controls

• Strategic decoupling and “friend-shoring”

For developing nations, this creates:

• Volatile export demand

• Reduced access to global value chains

• Higher input costs and lower competitiveness

Instead of efficiency-driven globalisation, the world is moving toward geopolitically driven trade blocs.

Impact on Developing Countries

Developing economies face the harshest consequences of this rivalry.

1. Shrinking Trade Opportunities

• US tariffs restrict market access

• Chinese export dominance crowds out local industries

• Smaller economies lack bargaining power

2. Deindustrialisation Risks

Many developing nations rely on labour-intensive manufacturing (textiles, apparel, furniture). Chinese overcapacity threatens these sectors, leading to:

• Job losses

• Slower industrialisation

• Rising inequality

3. Reversal of Globalisation Gains

The slowdown in global trade growth has coincided with stagnating income convergence between rich and poor nations, reversing decades of progress.

A Crisis of Global Economic Leadership

Both the US and China claim leadership roles, yet their actions suggest otherwise.

• The US prioritises domestic political gains over global stability

• China prioritises export dominance over shared prosperity

Neither power is willing to absorb adjustment costs for the global good. Instead, they externalise economic pain to the rest of the world.

What Lies Ahead?

The current trajectory points toward:

• Widespread protectionism

• Weakening of global trade rules

• Slower global growth

• Increased economic insecurity

Unless major economies recommit to multilateralism, balanced trade, and inclusive growth, the global economy risks entering a prolonged phase of fragmentation.

Conclusion

The global economy is not being sabotaged by chance, but by choice. US protectionism and Chinese mercantilism are two sides of the same coin—both distort markets, weaken institutions, and limit opportunities for others. While their rivalry dominates headlines, it is the developing world that pays the price. A sustainable global economic order requires responsibility from hegemons, not just power.

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