Will global trade fracture?

CHINA FINANCIAL - Report 16 Dec 2025 by Michael Pettis

Special points to highlight in this report:

- Once again, China’s data releases this month have been disappointing. Even as the market expected very weak growth in November’s retail sales of just 2.9%, in fact they came in much lower, at 1.3%. Industrial output growth also disappointed, coming in at 4.8%, well below the 6.0% it has averaged this year.

- Much of the attention nonetheless has been on total investment, which posted the third month in a row of negative growth. With Beijing seemingly frustrated by its inability to get consumption growth to pick up the pace, and with trade partners increasingly unhappy about picking up the slack, we are almost certain to see a “revival” in Chinese investment in infrastructure and manufacturing in 2026.

- As trade tensions have increased (and will almost certainly increase further in 2026), there are a limited number of ways the world can react. Either global trade will rebalance, the US will continue to accommodate global imbalances, Europe will replace the US as the main accommodator of global imbalances, or global trade will fracture. My guess is that the last two options are the most likely.

Now read on...

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