Low interest rates and high liquidity have also generated collateral damages. A recent study by the National Bureau of Economic Research concludes that aggressive monetary policies lead to “rising market concentration, reduced dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth.”
Another negative side effect is the rise of zombie companies, those that cannot cover interest expenses with operating profits for an extended period of time. According to Ryan Banerjee, an economist at the Bank of International Settlements, the percentage of zombie firms has risen to multi-year highs.
We must also understand that the concerns about liquidity created a large impact in global markets, as investors worried about central banks normalizing policy. 2018 was the first year in which global money supply fell after years of exceptionally high growth. Central banks have changed their communication to a more dovish tone, but this is not necessarily going to prevent a change of economic cycle, rather the opposite. Failure to normalize sends a message of deteriorating economic signals.
These issues are unlikely to end due to a trade deal. Cycles change. China’s slowdown was inevitable and a reduction in U.S. growth estimates is logical after the longest expansion in history.
Remember that the same reason why tariffs had a relatively small impact on the global economy shows why a new trade agreement is unlikely to change the current trend. Those tariffs affected a relatively small proportion of the global economy.
A new trade deal will probably have a marginal effect on the Chinese and U.S. economies.