It's Time to Stop United States from Dragging World Economy into Mire-Xinhua

It's Time to Stop United States from Dragging World Economy into Mire

Source: Xinhua

Editor: huaxia

2023-03-01 16:00:21

By Xin Ping

Finally, the new year brought some good news to the world’s economies - signs show that the Fed in the U.S. might decide to slow down its rate hikes. Although large uncertainty still remains, countries and their people, after experiencing the nightmare of a global economic slowdown in 2022 and the unprecedented surging interest rates in the U.S., could find themselves comforted even by such a possibility.

Since March 2022, the Fed has raised interest rates six times in a row, the fastest-paced, largest and most frequent U.S. interest rate hike cycle in the past 40 years. On October 28, New York Federal Reserve President John Williams said, the U.S. central bank needs to “press forward” with rate rises, and the rate hike is expected to continue into 2024. As for the purpose, the Fed unsurprisingly beat around the bush, resorting to the cop-out "to control inflation".

However, in fact, it is mainly problems on the supply side that caused rounds of soaring inflation in the U.S., including the difficulties of the industrial chain and supply chain under the pandemic and the Ukraine crisis, changes of industrial structure, and hollowing out of industries in the U.S. The Fed’s regulation of interest rates plays a role on the demand side at cross purposes of curbing inflation, and is widely regarded as an irresponsible move to pass on inflation to the world.

Throughout history, the United States’ raising interest rates was never a mere self-treatment, but a notorious stock-in-trade to enrich itself at others’ expense. In 1979, the Fed adopted a hawkish monetary tightening policy to solve the so-called domestic inflation problem, which soon resulted in a hike in interest rates. Facing higher repayment burden and sharp decline in commodity prices, Latin American countries, who just gained their hard-earned independence, couldn’t afford to service their debts and were left no choice but to sell their core state-owned assets at a low price, turning themselves into raw material supply bases for the United States and other Western countries. 

In the mid-90s when Southeast Asian economies bloomed, the United States once again entered a rate-tightening cycle. International speculators immediately sniffed an opportunity and set off a wave of selling Southeast Asian currencies in the foreign exchange market. As a result, Southeast Asian countries depleted their limited dollar reserves within a few days, and had to borrow from financial institutions dominated by Western countries.

In 2008, the United States performed again its textbook-style alternation between ultra-low interest rates and interest rate hikes, and resulted in an acute international financial crisis. It is not until the tenth year after this nightmare that we felt relieved and said, there is finally a sure sign of global economic recovery.

When America sneezes, the rest of the world catches a cold. This time the United States’ multiple rounds of interest rate hikes once again intensify global economic instability and uncertainty, brewing a new round of large-scale economic turmoil. Emerging markets and some industrialized countries such as Japan, France, and Italy continually see signs of capital outflow. According to the Institute of International Finance, more than $38 billion has been withdrawn from emerging markets’ equities and bonds for five consecutive months from March to August in 2022, the longest outflow since 2005. 

Furthermore, the dollar has shown an upward trend against the currencies of various economies, and a strong dollar is bound to reduce the volume of global trade, causing the global trade market to shrink and impact the global economy. The World Bank has already slashed its 2023 global economic growth outlook to 1.7% from its earlier projection of 3%, following its downgrading of U.S. economy prospects a few days ago.

Though some emerging markets see improved performance after the final Fed hike, they should also notice “the warning signs of a slowing U.S. economy”, as FT quoted David Hauner, strategist at Bank of America Securities. We could pull through the troubles caused by the United States’ uncertainty for one time. But who can tell about the second, the third, or even the tenth time?

Facing the United States’ constant disruption of the world’s wealth, many countries realized they had to either make changes or await their doom. Japan, China, Ireland, Canada and other top U.S. bond holders sell U.S. bonds en masse, and many countries are in the process of changing their payment and settlement mechanisms, challenging the hegemony of U.S. dollar at an unprecedented level. 

Former U.S. Treasury Secretary John Connery once said that “the U.S. dollar is our currency, but it is your problem”. Hopefully in the near future, that scenario will meet its end.

(Xin Ping is a commentator on international affairs, writing regularly for Xinhua News Agency, Global Times, CGTN and China Daily. He can be reached at

The article reflects the author's opinions and not necessarily the views of Xinhuanet.