It’s been a rough year for the Chinese economy. The country’s stock market, responding in part to its troubled real estate sector, recently hit five-year lows. While economic data out of China isn’t always reliable, there’s been a long deflationary trend in consumer prices, as well. So what does it mean for the rest of the world when one of the largest economies is downshifting?

According to Adam Posen, president of the Peterson Institute for International Economics, this could mean aggressive action from China that can antagonize trading partners, like dumping electric vehicles into the global market.

“That puts tensions between the U.S. and China, and other countries and China,” said Posen. “Because that’s seen as another way of China exporting its way out of its problems rather than dealing with domestic lack of demand.”

“Marketplace” host Kai Ryssdal spoke with Posen about the state of the Chinese economy. The following is an edited transcript of their conversation.

Adam Posen: The Chinese economy has downshifted fundamentally over the last couple of years. And then on top of that, they’ve got this real estate headache that is driving them further down. It’s not a calamity, but it is undercutting growth in a variety of ways on top of the long-term demographic trends.

Kai Ryssdal: OK, we’re gonna go into each of those, or most of those anyway, in a second. But I want to pick up where you and I left off last time, which was August-ish. Well, you had a piece in —

Posen: Foreign Affairs.

Ryssdal: Foreign Affairs, thank you, called “The End of China’s Economic Miracle.” And I asked you what difference it makes fundamentally for the rest of us. And I want you to remind people why you believe that this is an important moment, not just for the Chinese economy, but for the global economy.

Posen: China is, of course, one of the largest economies in the world, either the largest or the second largest. They are a critical part of industrial processes and consumer brands and just business networks throughout the world. So if we have a China that’s growing more slowly, there’s less opportunity across a range of investments for the world, including our 401(k)s. And most importantly, the Chinese Communist Party, the economic leadership, are likely to behave in increasingly aggressive ways economically if they’re having problems at home.

Ryssdal: What happened in the Chinese economy? Because as you know better than most, it was humming right along for a good number of decades.

Posen: It was humming along in historically unprecedented ways for decades, as you said. I think three things happened. China for a variety of reasons, including their previous “one child” policy and their sexism towards women, has had a cratering birth rate. The other two things are, first, they have this real estate bubble that burst. And it wasn’t even that much of a bubble, it was that they were shoveling huge amounts of money via local governments in weird connections with local banks to property developers. And that couldn’t go on forever, because they were building more apartments than they had people. The third thing, which is what you and I talked about last August, and I think I did end up calling the top on China’s growth, was after COVID-19 and after President Xi Jinping consolidated power the last few years prior to COVID, China’s Communist Party has been much more in your face to the average Chinese household, much more in your face to the average Chinese small business in terms of arbitrary decisions. And as a result, people are consuming less, they’re investing less in small business, and they’re keeping their money in cash-like assets. And that’s reinforced by the real estate problem.

Ryssdal: All right, so let’s talk the the American-Chinese geostrategic relationship now and in the future. It is tense. You said a moment ago that you expect the Chinese to start acting in more economically destabilizing ways, which is not a thing anybody needs between global powers No. 1 and 2 in the economy. What might that look like? And what ought President Joe Biden do about that?

Posen: I think the biggest thing we’re about to see and are already seeing, Kai, is that there’s an enormous amount of dumping of electric vehicles and other autos that have been produced in China or produced by Chinese subsidiaries on global markets. I think also there is attention that the Chinese yuan currency is going down in value. And the Chinese government, I think wisely, has been sort of tapping the brakes to keep it from going down too fast, but that also puts tensions between the U.S. and China and other countries and China, because that’s seen as another way of China exporting its way out of its problems rather than dealing with domestic lack of demand.

Ryssdal: So props to you for calling the top on the Chinese economy, you know, because that can be tricky to do. Here’s the question, though: now what? Is there a way that Xi turns this around? What does the bottom look like? Discuss.

Posen: Yeah, I think the bottom isn’t that bad. You know, a China that’s got lower growth is growing at a positive 3% instead of positive 5%. I think in the end, Xi is going to do a lot of stimulus policies, even though right now he’s very reluctant to do so. And I think they’re going to be largely ineffective in the sense that they’ll get much less bang for their buck than they have in the past. Finally, I think the key changes, how much do people exit from China? I mean, how much does capital leave? Do people leave? We’re seeing news reports about suddenly there are Chinese people coming to the U.S. as refugees and migrants. I think it would be wise, frankly, for the U.S. and Western governments to be welcoming these outflows rather than trying to bottle them up in China.