China-US Relations in Globalization Revisited after Coronavirus Outbreak

Zhou Qi

Director， the Institute of Global Governance and Development， Tongji University Professor， the Institute of American Studies， Chinese Academy of Social Sciences

It is widely predicted that by the time the coronavirus pandemic is over， the world will be very different. This seems definitely true. In fact， before the coronavirus outbreak， some obvious changes were already happening in the world， the factors behind which will arguably be amplified by the pandemic， making the future of globalization， already a concern in the world ever since the election of President Trump， a focal issue. What will be the fate of globalization？ What changes will take place in China-US relations in the new international circumstances？ Those are critical issues we must face.

Developing Countries Are

the Biggest Beneficiaries of

Globalization

In the past 30 years， globalization has been generally regarded as the mainline and the trend of world development. It is seen as an objective process， manifested by grooving at the global level information， financial， economic， trade and exchange， and the process of global economic， political and cultural integration and unification. When Joseph Stiglitz， American economist and Nobel laureate， first assessed globalization， his focus was on the destruction this process brought， and he believed that the poorest countries in the world would be the main victims with sub-Saharan Africa suffering the most. These countries had no choice but to either be included， thus becoming a part of global system， or excluded， thus becoming marginalized.

But globalization turns out to have developed in a way completely different from how Stiglitz initially saw it， i.e. it has led to fast economic growth in developing countries. Between 1991 and 2015， over one billion people got out of poverty in the world and 75% of them were from Asia. China overtook Japan in 2010 as the second largest economy only after the US and the largest industrial manufacturing country. It is fair to say that Asia， particularly China， is the biggest beneficiary of globalization and the international economic system that embodies it.

However， it was also in this process that the United States began to decline in terms of its relative strength. Its GDP share dropped to 15.1% of the global total in PPP terms in 2018; its trade deficit grew from $31 billion in 1991 to $622 billion in 2015. It has also become the biggest debtor in the world.

Stiglitz now admits that he grossly underestimated the blow globalization dealt to developed countries. People who are losing out include not only factory workers in the Rust Belt of the US， but also vast numbers of lower-middle-income working-class people in the most advanced industrialized countries.

Americas Attitude Towards

Globalization Has Changed

Since the end of WWII， the United States had played a key role in shaping the global trading system， by tearing down trade barriers and establishing trade regimes both globally and regionally. Since the late 1980s， the United States had been a driving force behind the successful conclusion of many global， multilateral or bilateral agreements that came together to form the framework of globalization. For many years， Americans believed that such trade agreements could bring strong growth to their country and tremendous opportunities to their businesses and workers. But after Trumps election， America began to reflect. According to The Presidents 2017 Trade Policy Agenda released by the US government in March 2017， since 2000， the year before Chinas WTO accession， Americas economic indexes have continued to worsen-- GDP growth decelerated; jobs creation slowed down; manufacturing jobs plummeted; trade deficit snowballed. This document concluded that the current trading system， which benefits China so much， has not brought the same benefits to America since 2000. Such an assessment has convinced the Trump Administration that the United States has been put at a disadvantage in the global market due to “unfair trade” and globalization.

Public opinion has also changed in the Unites States against this background. Generally speaking， economists， regardless of their political stance， used to agree that trade is a fundamental tool in promoting economic development， which in turn may promote wealth growth and political freedom. The role of trade in promoting economic growth in America was widely recognized. But a public opinion poll shows that Americans are more and more suspicious of trade， and those who vote Republican have a more negative view of trade than those who vote Democratic. Two researchers from Ball University found in 2015 and 2017 that nearly 88% of manufacturing job losses in the US in recent years was due to productivity growth. But their finding has largely gone unnoticed.

Globalization has indeed created a phenomenon where aggregate income has increased in developed countries， but jobs have been moved overseas. Economic globalization rests on global allocation of capital， resources and labor. Given that capital， by nature， follows profitability， corporations from developed countries tend to invest or open factories in low-cost developing countries， which create many jobs in the destination countries， but only very limited ones in the US. Apple Inc.， the largest company by market capitalization， is a typical example.

As shown by some cases， the hollowing out of the American manufacturing sector and the decline of the Rust Belt sometimes reach appalling levels. A case in point was the filing an application for bankruptcy protection in the U.S. Federal Bankruptcy Court in July 2013 by Detroit， where Americas “Big Three” automobile manufacturers are headquartered， once a symbol of Americas manufacturing prowess， and now a proof of the hollowing out. In 2018， Detroit ranked last among core cities in the 53 American metropolitan areas in terms of real per capita income， which was only $14，523， just a quarter of San Franciscos $55，366.

Some populations in developed countries have indisputably been left out by global markets driven by technological innovation. As shown by a study published in early March 2011 by Michael Spence and Sandile Hlatshwayo， Nobel laureates and professors at the Stern School of Business at New York University， many Americans， especially middle-skill workers， are not able to benefit from global markets and have fallen victim to the low labor cost overseas. Within countries， inequality may exacerbate; among countries， wealthy economies may have to pay a price for the success of the emerging economies.

Economist David Autor at MIT also believes that trade and technological progress bring more benefits than losses， nonetheless the losses as a result of them are substantial. The off shoring of jobs， together with other factors， has polarized the labor market in the US， i.e. jobs are increasing at the high and low ends， but middle-skill jobs are disappearing， such as in middle-skill， white collar clerical， administrative， and sales occupations， as well as in middle-skill， blue-collar production， craft and operative occupations. This long-existing problem was made worse by the sub-prime crisis in 2008 and the European debt crisis that hit two years later.

Free trade， free flow of capital and immigration can raise aggregate wellbeing of all countries， but growth in wellbeing is not evenly distributed， and may harm the interest of some countries or some groups within a country. So it is not hard to understand why the United States and other developed countries in the West had been the main drivers behind globalization since 1990s， and now thirty years later， some of them have turned into strong opponents of it， while China and other developing countries have become active supporters.

The Root Cause of

Anti-Globalization Lies Within Developed Countries

Free trade has two flaws as far as US economic growth is concerned. First， it may lead to unemployment and lower income among certain groups. To reduce production cost， many companies either relocate themselves or outsource products. Market competition from other countries has accelerated the hollowing out of American industries， and in particular manufacturing， a major employer of white blue-collar workers， has declined significantly. More importantly， the lack of a college education and high costs associated with changing occupations or moving put those workers in a worse situation.

Second， trade has the important effect of income redistribution， which is often obscured by its economic effect. Free trade， in theory， can raise global aggregate output and wellbeing， but it cannot guarantee that all will benefit from it or everyone will benefit to the same extend. Capital， through free flow， redistributes occupations and productions in the global economy; trade intensifies pressure of global competition; the global financial system constrains countries capabilities for welfare provision and redistribution. As a result， globalization exacerbates the economic inequality between and within countries.

As trade becomes more free， its economic effect diminishes and redistribution effect increases. Studies show that the middle-upper classes in developing countries and high-income groups in developed countries have benefited the most， whereas the lower-middle-income groups in developed countries have lost the most from the fast globalization in the past decades. As for the lower-income groups in developing countries， they still live in absolute poverty. Globalization has aggravated the inequality in domestic income and wealth distribution in the US. Executives and technical elites of American multinational companies can compete for jobs on a global scale with strong competitiveness and without being restricted by borders， while lower-middle-class workers can only compete locally where many jobs have already been lost due to the hollowing out. Consequently， white blue-collar workers see their living standards drop and find it harder to move up to join the middle class. This leads to greater inequality in income and wealth distribution， and renders white blue-collar workers and middle class vulnerable compared to other groups.

The election of Trump as president was seen as a victory by those lower-middle-class white people， who consider themselves victims of free trade， and believe that they have been abandoned in the post-industrial economy driven by high-tech and underpinned by finance. They have become the most vehement opposers of free trade and the most staunch supporters of Trumps deglobalization and “America First” policies.

To address the negative impact of globalization on developed countries， their governments have to adopt proactive social and economic policies， but neither of which is on the mind of the current US government， which is preoccupied with getting more benefits for America by crushing its competitors in the world. To achieving a better economic situation for the United States will certainly bring more benefits to Americans as a whole， but will not fix their economic and social inequality. And in this regard， the US has never shown any interest in the western European solution of trading efficiency for welfare and income equality.

It needs to be pointed out that the deglobalization trend in the world is not born out of inefficiency of the global governance system， since a better global governance system is unable to fix the domestic issues in individual countries. As far as the United States is concerned， on the one hand， it has enjoyed sustained economic growth thanks to AI and other high tech， but on the other hand， it has faced such issues as widening income gap， continuous worsening of living standards for the middle and working classes， rising cost of education and a national identity crisis. As long as these issues are not addressed， there will be anti-globalization forces in the US， and the ordinary people would vent their pent-up anger on China when instigated by politicians. Such sentiments are naturally reflected in the election results and the external policy of the elected president in the United States

Possible Economic and Technological Decoupling between China and the United States

Compared with the Republicans， the Democrats in the US are more positive towards globalization， more willing to work with other countries including China on global issues， especially non-traditional security issues such as climate change， nuclear non-proliferation and epidemics， and less hostile than the Trump Administration on international trade issues because of their approval of free trade. Despite their antipathy of President Trumps policies， both domestic and foreign， their views on national security are similar to those of the Trump Administration， due in large part to ideology. They too believe that China is the biggest strategic challenge to the United States， manifested most clearly on human rights， Taiwan and the South China Sea issues. As a result， China-US relations will not be the same again regardless of the election outcomes later this year.

In the wake of the coronavirus outbreak， the United States and some other Western countries have never stopped smearing Chinas efforts and good results of fighting the disease. For Trump， he wants to get reelected and cover up his poor handling of the coronavirus pandemic; for many other politicians from the West， they are concerned that China may be able to show a better governance capacity than the West by effectively fighting the epidemic， therefore highlighting the superiority of the Chinese political system. Given the destructive effect the pandemic has had on the industrial supply chain， some developed countries find it more convincing to pull their investment and production out of China. Some countries have already been doing it openly. For example， the US government has offered incentives to attract American companies to move back to the US， and the Japanese government has suggested Japanese companies move part of their factories out of China to lower the risk associated with a single supply chain. But complete economic decoupling is unlikely due to the tremendous cost for rebuilding Americas traditional industries， its high labor cost， the very limited number of jobs traditional industries can create if when they are rebuilt because of mechanization and automation， the costs for a supply chain to be reestablished outside of China， the likelihood of poor investment climate in new destinations and the ultimate possibility of losing the vast Chinese market， as analyzed by many economists both from China and aboard.

Francis Fukuyama argues that before the pandemic， globalization had already reached its climax and the pandemic has prompted many Western countries to consider curbing it. As companies plan to readjust their supply chains scattered around the world for optimal effect， it is undoubtedly absurd to believe that moving industries across the entire economic sectors back to ones own country can lead to self-sufficiency. Deglobalization may very well happen， but what it can change is only the extend of globalization.

Although complete economic decoupling is so far unlikely， the risk of technological decoupling is rising. The United States and other Western countries are concerned about the international competitiveness of their companies and products， and more so about their national security. In other words， the variable “security” is added to the economic model， then the calculation results will deviate. Competition in the high-tech field is now seen as strategic competition， and to the US it is even seen as a competition for global leadership. The US response to Chinas high-tech development is all-out suppression， for which purpose it has adopted measures ranging from imposing more strict restrictions on Chinese investment in core technologies in America， to putting academic exchanges under scrutiny， applying targeted tariffs to hurt Chinas competitiveness in key sectors， bringing charges to more Chinese citizens allegedly involved in economic espionage， investing more in counterintelligence operations， and the most recent ban on American exports of key products to Chinese AI companies. Judging by the current policy trends in the US and Europe， such measures will probably be tightened after the pandemic.

More people in the world are worried that the intense technological competition between China and the US may lead to a split in the technological field， with Europe， North and South Americas and Australia adopting American technologies and standards， while Asia， Africa and the Middle East using Chinese ones. In light of the current situation， this scenario is not unimaginable.

It means China will have to get prepared mentally and in policy terms for a more difficult phase of its relations with the US after the pandemic. Given the current domestic social and economic issues， the US government will not turn away from deglobalization or a national security strategy that sees China as its main strategic competitor， unless it has tasted the bitter fruit of such policies and its policy consequences are counterproductive. In this situation， China has to take necessary measures to handle the possible partial economic decoupling and maximum technological decoupling with the United States.