Strength built up during decades of opening-up can be weapon in trade conflict with US

The US government’s big budget deficit is a fiscal iceberg that carries an ever-increasing risk of economic uncertainty, and it signals that Washington’s deficit spending and economic policies are unsustainable.

In Donald Trump’s first full fiscal year as president, the US federal budget deficit soared 17 percent year-on-year to the highest level in six years as spending climbed. Some economists have forecast that the deficit could reach $1 trillion as soon as next year.

Soon after Trump was elected, his administration unveiled a plan to overhaul the tax code and reduce US corporate taxes. Now we have seen the result: US corporate tax collections fell 22 percent in fiscal 2018, which ended on September 30.

In June, Trump was quoted in media reports as saying that he wanted to further lower the corporate tax rate as part of a second round of tax cuts. However, a huge government budget deficit will increase the difficulty of enacting further tax cuts, and it may even turn some government strategies into empty promises.

Tax cuts can be taken as the epitome of the impact of budget deficits on US economic policies. A raft of stimulus policies such as the government’s plan for overhauling the US’ crumbling infrastructure face an increasing risk of being abandoned.

The US economy is experiencing one of its longest expansions on record, but the current recovery is to some extent the legacy of economic policies of the previous administration. The recovery will likely be interrupted if the stimulus policies become unsustainable.

There is already some bad news. For instance, the US trade deficit widened to a six-month high in August as exports dropped further, suggesting that trade could weigh on economic expansion in the third quarter. If a high budget deficit results in the government’s stimulus policies being abandoned, more bad news will emerge, and the next administration might have to bear the bitter results.

US economic uncertainty means that Washington might prefer a blitzkrieg strategy to a long-lasting conflict amid escalating trade tensions with China, but Beijing would prepare for a protracted conflict. China’s economy has enjoyed 30 years of explosive growth, accumulating huge strength to fight a protracted conflict.