China-US Relations in Globalization Revisited after Coronavirus Outbreak

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.

America’s 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 Trump’s election, America began to reflect. According to The President’s 2017 Trade Policy Agenda released by the US government in March 2017, since 2000, the year before China’s WTO accession, America’s 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 America’s “Big Three” automobile manufacturers are headquartered, once a symbol of America’s 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 Francisco’s $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, bluecollar 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