Martin Jacques - When China Rules the World

The relationship between the United States and China needs to be set in a broader global and historical context. The belated acceptance of China as a member of the WTO in 2001 marked the biggest extension of the world trading system since the beginning of the contemporary phase of globalization in the late 1970s. As the largest recipient of foreign direct investment and soon to be the biggest trading nation, China ’s admission immediately transformed the nature and dynamics of the trading system. By acquiring a low-cost manufacturing base and extremely cheap imports, the developed world has been a major beneficiary of China ’s accession. But China itself has also been a big gainer, achieving wider access to overseas markets for its exports and receiving huge flows of inward investment, thereby helping it to sustain its double-digit growth rate. [580] [580] Wang Zhengyi, ‘Conceptualising Economic Security and Governance’, p. 541. Thus, so far, China ’s integration into the global economy has been perceived in terms of a win-win situation. Is that likely to continue?

China’s impact on the global trading system is so huge, and also in the longer term so uncertain, that this is a difficult question to answer. There are already tensions over China’s relationship with the WTO: on the one hand, there are accusations from the developed countries that China is failing to implement WTO rules as it ought to, while on the other hand, both the US and the European Union are using anti-dumping clauses (designed to prevent countries selling at unfair prices) as a pretext for deploying protectionist measures against Chinese goods. [581] [581] Elizabeth Economy, ‘China, the United States and the World Trade Organization’, Council on Foreign Relations, Washington, DC, 3 July 2002, pp. 1–4; Shen Boming, ‘The Challenges Ahead: China’s Membership in WTO’, 2002, available to download from www.cap.lmu.de/transatlantic/download/Shen_Boming.doc, p. 7; Shenkar, The Chinese Century , pp. 167-8; Yu Yong Ding, ‘The Interactions between China and the World Economy’, pp. 4–5. There has been constant controversy around Chinese exports to the US. During 2007 these were concentrated on the safety of Chinese products, notably food and toys, as well as China’s failure to observe intellectual property rights. [582] [582] ‘China Tackles Tainted Food Crisis’, ‘Scandal-hit China Food Firms Shut’, ‘Chinese-made Toys Recalled in US’ and ‘Bush Tackles Scares over Imports’, all posted at www.bbc.co.uk/news; ‘US Trade Body Sets Stage for Action on Beijing “Sub- sidies”’, South China Morning Post , 18 December 2006: ‘Mattel Apologises to “the Chinese People”’, Financial Times , 21 September 2007; ‘Beijing Overhauling Food Safety Controls’, International Herald Tribune , 7 June 2007. So far these skirmishes have been at the relative margins of their trading relationships but they could be a harbinger of growing tensions in the future. Although the present era of globalization was designed by and is the creature of the West, above all the United States, the greatest beneficiary has been East Asia, especially China. [583] [583] Wang Zhengyi, ‘Conceptualising Economic Security and Governance’, p. 541. If the West should decide at some point that China has been the chief beneficiary — and to the West’s growing detriment — then the latter is likely to become increasingly protectionist and the present global system will be undermined. The process of globalization has already ground to a halt with the failure of the latest World Trade Organization Doha Round and is extremely unlikely to be revived. [584] [584] AsiaInt.com, Economist Intelligence Review , October/November 2006, pp. 1–5; and Martin Jacques, ‘The Death of Doha ’, Guardian , 13 July 2006. But it remains to be seen whether this will be the prelude to a wider breakdown.

Hitherto, the main losers in the Western world have been those unskilled and semi-skilled workers who have been displaced by Chinese competition. But their grievances have been dwarfed by the winners — the multinationals which have used China as a cheap manufacturing base and the many consumers who have benefited from China prices. What will decisively change this political arithmetic is when China, as it rapidly moves up the value chain, starts to enter spheres of production which threaten the jobs of skilled manual workers and growing numbers of white-collar workers and professionals. The process of upgrading is already taking place in a limited way, as the example of textiles in Prato and Como in Italy illustrates, with design following manufacturing to China. [585] [585] Kynge, China Shakes the World , pp. 72, 78–82. How quickly China upgrades its technological capacity thus lies at the heart of the likely Western response: the quicker that process proceeds, the more likely it is that the political arithmetic will change and that protectionist barriers might be erected; the slower it happens then the more likely it is that trade tensions can be managed and in some degree defused. The first scenario seems at least as likely as the second.

The economic rise of China has already led to a multiple redistribution of global economic power: from South-East Asia to China, from Japan to China, and from Europe and the United States to China. Given that China is only a little over halfway through its take-off phase, with over 50 per cent of the population still living in the countryside, it is clear that we are only in the early stages of this process. [586] [586] In its projections for 2020, the World Bank suggests that the developed world will continue to be a net beneficiary of China ’s rise because of the latter’s demands for its capital-intensive manufactured products together with services, and because of the significant terms of trade gains that will accrue from its growing demand for these products. But they will continue to lose out in labour-intensive manufactured products as China moves up the value-added chain. Countries that are close competitors of China — like India, Indonesia and the Philippines — will probably still benefit, but they will find the prices of their major exports falling; while less developed countries which are not endowed with natural resources will find China’s continued growth having a relatively neutral economic effect at best. See World Bank, China Engaged: Integration with the Global Economy (Washington, DC: 1997), pp. 29–35. It is inconceivable that one-fifth of the world’s population, embracing all the various scale effects that we have considered, can join the global economy with — by historical standards — enormous speed without ramifications which are bound to engender tension and conflict. So far China ’s incorporation has been relatively conflict-free. But the present aura of win-win that has surrounded this process seems unlikely to continue. The political arithmetic will shift in the West as the number of losers rises, with the entirely plausible consequence that the West — the traditional proselytizer for free trade — will lead the charge towards protection and the end of the era of globalization that began in the late 1970s. [587] [587] Kynge, China Shakes the World , pp. 118-20.

These considerations have now been recast in a new context: the most serious recession since the Great Depression of 1929- 33. Global trade is rapidly contracting, capital flows likewise, and unemployment is rising steeply across the world. The present era of globalization has come to a shuddering halt — and gone into reverse. How far this process will go remains entirely unclear. Almost everywhere governments are seeking to provide forms of assistance and subsidy for their threatened industries. There are growing demands for protection, evident in the ‘buy American’ pressure within the US Congress. China, as the world’s second biggest exporter (just behind Germany), will inevitably be a key target of such demands. In these circumstances, a trade war, accompanied by a withdrawal into rival trading blocs, is a distinct possibility. [588] [588] Thomas L. Friedman, ‘Democrates and China ’, International Herald Tribune , 11–12 November 2006; ‘G7 Calls for Stronger Chinese Yuan’, posted on www.bbc.co.uk/news. The world is in new territory. The global parameters of China ’s economic rise have, at least for the time being, changed profoundly.