Can Asia and Europe Rescue the Global Economy?

Countries around the world are confronting the same confluence of shocks.

- SHANG-JIN WEI

The continued breakdown of the global trading system, owing to a volatile US tariff policy, is now accompanied by the risk of disruptions to trade routes and oil production from military conflicts in West Asia.

Geopolitically induced reshuffling of global supply chains continues, and the risk of climate and environmental breakdown has increased, especially now that the United States has withdrawn from the Paris climate agreement again.

Given that everyone will suffer from these shocks, cooperation to ameliorate them should be a priority, especially for Asia and Europe. Both regions are heavily integrated into the global trading system, and both could be affected by the loss of US fiscal credibility. Many Asian countries' foreign-exchange reserves are heavily weighted towards dollar assets, and most of their external trade is invoiced in dollars. Similarly, climate change poses a major threat to all countries, but Europe, especially, has staked its future on the clean-energy transition.