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fa-mag . com / ce _ center . php cials , including his defense and foreign ministers . With the Chinese economy grappling with deflation , falling property prices , and weak demand , it is increasingly evident that its economic woes are far from over — and that Xi is determined to control the narrative .

The combination of a prolonged economic slowdown and a collapsing real-estate sector could bring China to the brink of a Japan-style “ lost decade .” The obvious Keynesian solution to the country ’ s slow-moving trainwreck of collapsing real-estate ventures and local government debt is to initiate direct cash transfers

to households . But , given that Chinese consumers are more inclined to save ( in contrast to their spendthrift American counterparts ), and that government debt is already rising rapidly , a debt-deflation spiral seems increasingly likely .

Meanwhile , despite dodging a recession in 2023 , European economic growth is widely expected to remain lackluster this year . Moreover , European countries ’ persistent unwillingness to invest in their own defense suggests that former U . S . President Donald Trump ’ s potential return to the White House in 2025 could necessitate a painful adjustment . Alarmingly , European leaders do not seem to be preparing for such a scenario , even as the war in Ukraine depletes their ammunition stockpiles faster than they can be replenished .

Europe is also grappling with the adverse economic effects of U . S . President Joe Biden ’ s Inflation Reduction Act ( IRA ), which uses tax incentives to lure European companies . While the IRA is ostensibly aimed at accelerating America ’ s green-energy transition , it is essentially a protectionist trade policy . It may have provided the U . S . economy with a short-term boost , but its long-term consequences could mirror those of the 1930 Smoot-Hawley Tariff Act , which triggered an international trade war and exacerbated the Great Depression .

Nevertheless , Biden ’ s trade protectionism is mild compared to Trump ’ s plan to impose a 10 % tariff on virtually all imported goods , a move that could wreak havoc on the global trading system . European countries are understandably rooting for Biden , who — unlike Trump — has repeatedly reaffirmed his commitment to reining in Russian expansionism .

Given that Chinese consumers are more inclined to save ( in contrast to their spendthrift American counterparts ), and that government debt is already rising rapidly , a debt-deflation spiral seems increasingly likely .

Alarmingly , both Democrats and Republicans in the U . S . seem uninterested in cutting government spending , let alone reducing the deficit . Regardless of which party controls Congress after November ’ s election , a deficit-fueled spending spree is all but certain . But if real interest rates remain elevated , as many expect , the government could be forced to choose between deeply unpopular fiscal tightening or pressuring the Federal Reserve to allow another bout of inflation .

Despite the widespread belief that the global economy is headed for a soft landing , recent trends offer little cause for optimism . As the world confronts yet another turbulent year , policymakers and analysts need to bear in mind that a soft landing means little if the runway is in an earthquake zone .

KENNETH ROGOFF , Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics , was the chief economist of the International Monetary Fund from 2001 to 2003 . He is co-author of This Time is Different : Eight Centuries of Financial Folly ( Princeton University Press , 2011 ) and author of The Curse of Cash ( Princeton University Press , 2016 ). © Project Syndicate

44 | FINANCIAL ADVISOR MAGAZINE | MARCH 2024 WWW . FA-MAG . COM