How world’s largest economy has catalyzed global economic turmoil

A "ticking time bomb" is how Biden recently described the Chinese economy, but just by a glance over the recent economic turmoil in the United States and how it is spreading to the world, one may have a different answer.

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A man passes a foreign exchange office in Cairo, Egypt, Dec. 25, 2022. (Xinhua/Ahmed Gomaa)

Just a week after Moody’s slashed the credit ratings of 10 small and medium-sized American banks and indicated the possibility of downgrading the credit ratings of some large U.S. banks, the U.S. banking sector faced another challenge.

On Tuesday following Moody’s, another international rating agency, Fitch Ratings, warned that it might downgrade the ratings of dozens of U.S. banks, including JPMorgan Chase.

While concerns are mounting over the banking system of the economic superpower, the turmoil is, unfortunately, not confined to banking, nor is it limited to the United States.


Chris Wolfe, an analyst at Fitch, said in an interview with the Consumer News and Business Channel (CNBC) that the U.S. banking industry has approached “another source of turbulence.”

Earlier this month, Fitch downgraded the United States’ credit rating from AAA to AA+, making it another international credit rating agency to raise questions about the governance and fiscal management capabilities of the U.S. government since Standard & Poor’s downgrade of the U.S. credit rating in 2011.

“Living off borrowed time” depicts the reality of U.S. fiscal policy. Over the past year, the substantial interest rate hikes by the Federal Reserve have triggered not only domestic banking turbulence but also a tug-of-war in Congress regarding the debt ceiling issue.

The impact of this goes way beyond America’s own land. Hidetoshi Tashiro, the chief economist of Japan’s Infinity LLC., told Xinhua that as long as America borrows in dollars from foreign countries, it can directly repay foreign debts by printing a large number of dollars, diluting the burden of those debts.

“Non-market policies and practices … that distort global competition, trade, and investment” are exactly what the United States has been proactively resorting to, Tashiro said.

“Ripple effects of U.S. financial-system strains could lead to tighter credit, sharper slowdown worldwide,” according to a report by The Wall Street Journal earlier this year. “Turmoil in the U.S. banking sector isn’t just a problem for the U.S. It also increases the risks of a global recession.”

Adel Mahmoud, chairman of Cairo Forum for Economic Researches, said the United States has been exporting its domestic crisis to other countries by taking advantage of the dollar’s dominance.

“Dollar hegemony hinders the functioning of global financial markets and will worsen the world economic slowdown driven by Washington’s uncertainty of repaying its debts,” he said.


On Aug. 9, U.S. President Joe Biden signed an executive order that would block U.S. high-tech investments in China, arousing concerns about the stability of global supply chains and the trade environment.

“The result is a sprawl of tariffs, investment reviews and export controls aimed at China,” the Economist observed in an Aug. 10 article, pointing out that Biden’s China strategy simply is not working.

The consequence of such a blockade is neither resilience nor security, the article added. “Supply chains have become more tangled and opaque … it became clear that America’s reliance on Chinese critical inputs remains.”

The discourse of U.S. policy on trade with China shifted from “decouple” to “de-risk,” and the policymakers rarely put it clear who they speak for. For some U.S. politicians, cutting off from China makes them feel safer, while for the global economy, the risk of a downturn definitely rises.

“Both decoupling and de-risking would be a suicide committed by the European economy,” Hungary’s Foreign Minister Peter Szijjarto told CNBC at this year’s Summer Davos in Tianjin, China.

“There’s a big gap between the political perception and the reality on the ground. A decoupling would kill the European economy and be very harmful to the German economy as well,” he said.

According to a German company’s recent internal document, for example, it would cost the state-owned rail operator Deutsche Bahn up to 400 million euros (440 million U.S. dollars) if it had to replace all components supplied by Chinese telecom giant Huawei across its network.

Things are even harder outside the Western world. By the start of this year, about 15 percent of low-income countries had been already in debt distress and an additional 45 percent are at high risk of debt distress, said an IMF report on global trade fragmentation.

The fragmentation could make it even more difficult to help many vulnerable emerging and developing economies that have been hard-hit by multiple shocks, the IMF said.

A “ticking time bomb” is how Biden recently described the Chinese economy, but just by a glance over the recent economic turmoil in the United States and how it is spreading to the world, one may have a different answer.

Xinhua News Agency

Founded in 1931, Xinhua News Agency is one of the largest news organizations in the world, with over 10,000 employees across the globe. As the main source of news and information for China, Xinhua plays a key role in shaping the country's media landscape and communicating its perspectives to the world. The agency produces a wide range of content, including text news articles, photos, videos, and social media posts, in both Chinese and English, and its reports are widely used by media organizations around the world. Xinhua also operates several international bureaus, including in key capitals like Washington, D.C., Moscow, and London, to provide in-depth coverage of global events.

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