When China has a credit problem, YOU have a credit problem
I would disagree here:
Former US Federal Reserve chair Ben Bernanke famously characterised this much-studied phenomenon as a key component of the “global savings glut”. Thus, instead of leading to lower global real interest rates, a Chinese slowdown that spreads across Asia could paradoxically lead to higher interest rates elsewhere – especially if a second Asian financial crisis leads to a sharp draw-down of central bank reserves.
It wouldn't be paradoxical. China is your largest creditor, and creditor to many other countries. Their reduction of Treasury purchases has already lead to higher rates. And burning through their reserves would force a rate increase by the Fed.
Thus, for global capital markets, a Chinese recession could easily prove to be a double whammy.
BBQ Duck or Wonton Wreck?
When the advanced countries had their financial crisis a decade ago, emerging markets recovered relatively quickly, thanks to low debt levels and strong commodity prices. Today, however, debt levels have risen significantly, and a sharp rise in global real interest rates would almost certainly extend today’s brewing crises beyond the handful of countries (including Argentina and Turkey) that have already been hit.
Nor is the US immune. For the moment, the US can finance its trillion-dollar deficits at relatively low cost. But the relatively short-term duration of its borrowing – under four years if one integrates the Treasury and Federal Reserve balance sheets – means that a rise in interest rates would soon cause debt service to crowd out needed expenditures in other areas.
However, this has nothing to do with trade. Nor does China have any reason to make any concessions. Crazy credit in the form of printing trillions is now being reduced.