Making Chimerica great again

• DOI: http://doi.org/10.1111/infi.12335
• Published date: 01 December 2018
• Date: 01 December 2018

DOI: 10.1111/infi.12335

ORIGINAL ARTICLE

Making Chimerica great again

Niall Ferguson

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Xiang Xu

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1

Hoover Institution, Stanford, California

2

Central University of Finance and

Economics, School of Economics,

Beijing, China

Correspondence

Xiang Xu, Central University of Finance

and Economics, School of Economics,

Beijing, China.

Email: seanxuxiang@126.com

Abstract

A decade after the outbreak of the global financial crisis, a

large trade imbalance between the world's two biggest

economies, the U.S. and China, still exists and is more

politically contentious than ever. This economic relation-

ship, which we termed ‘Chimerica’in 2007, seemed likely

to end as a result of the global financial crisis. Yet this did

not happen. In this paper, we examine the evolution of

Chimerica in the aftermath of the global financial crisis and

explain how the stimulus policies of both the U.S. and China

have contributed to its survival. We show how stimulus

policies helped change Chimerica from a marriage of

opposites to a marriage of equals. We then explain why this

marriage is now destined for strife, in the form of a trade war

between the U.S. and China. The consequences of such a

trade war would deeply impact the global economy. We

believe constructive negotiations on trade rebalancing and

policy coordination are therefore needed to avoid a

disruptive end to Chimerica.

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INTRODUCTION

When the concept of ‘Chimerica’was first created (Ferguson & Schularick, 2007), it was intended to

encapsulate a new world economic order that combined Chinese export-led economic growth with U.S.

over-consumption. Chimerica was an unlikely financial marriage between the world's sole superpower

and its most likely future rival. Behind this two-sided economic phenomenon was the integration of a

massive Asian labor force and savings surplus into the world economy, which increased global returns

on capital, by reducing labor costs, while depressing the cost of capital. Thanks in large measure to its

symbiotic relationship with the United States, China is now (on a current dollar basis) the second-

largest economy in this world. Its GDP in 2017 was equal to the sum of total output from Great Britain,

France, Italy, India, and Brazil. Chimerica, as a whole, accounts for more than 34% of the world's total

International Finance. 2018;21:239–252. wileyonlinelibrary.com/journal/infi © 2018 John Wiley & Sons Ltd

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