China vs US – globalisation vs protectionism

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It seems China is either not alone in its concerns over a move towards global protectionism – or it’s wielding an incredible level of influence over the World Trade Organisation (WTO).

Its director general, Ngozi Okonjo-Iweala, at the China International Supply Chain Expo in Beijing this week, echoed China’s calls urging countries not to abandon globalisation.

Noting nations’ national security necessitated some re-shoring or near-shoring, Ms Okonjo-Iweala said: “If countries let it go down the road of large-scale reshoring, it would just be giving up the productivity gains that come with specialisation, scale and trade.

“There would be an increase in supply concentration, and that would make supplies less resilient.”

Ms Okonjo-Iweala’s warnings come amid a groundswell of US legislation and administrative manoeuvres that many are reading as a signal that the world’s largest economy intends to regain its reputation as a manufacturing leviathan.

Dubbed “Bidenomics”, the centrepiece of this effort is the Inflation Reduction Act, which looks set to light a fire under the production line of US electric vehicle production.

It is a push that seems to have spooked the Chinese; the Asian powerhouse’s premier, Li Qiang, at the same summit, urged the international community to rebuff “the rise of global protectionism”.

He said: “The international community must be more wary of the challenges and risks brought about by protectionism and uncontrolled globalisation.

“China is a participant and beneficiary of global industrial and supply chain cooperation, but it is also a firm defender and builder. We are willing to build closer production and industrial supply chain partnerships with all countries.”

Premier Li’s comments could betray a fear over what all this would do to China’s already precariously balanced economy.

In his new book, The Death of Globalisation, author John Manners-Bell described the Inflation Reduction Act as both landmark legislation and a protectionist policy that would affect every one of the US’s trading partners, with the possible exception of Mexico.

As far as Mr Manners-Bell is concerned, the legislation will likely also prove to be uniformly counter-productive for globalisation.

The impact of the legislation on international trade may, however, be of little interest to the US president, who has sought to position himself as returning jobs and prosperity to American workers while warning international trade may be of little benefit to US firms.

Certainly, US companies have responded, at least as far as China is concerned, with sizeable reductions in both inbound investment and sourcing from Chinese manufacturers.

Another proponent of globalisation, the IMF, warned that decoupling from China would lead to a 7% reduction in global GDP, while Ms Okonjo-Iweala has put the cost from a break-up to trading blocs at 5%.

Together with premier Qiang’s opening address to the same summit, such warnings could be interpreted as a cry for help with a system these bodies exist to serve.

This though may be part of the point: Mr Manners-Bell said following Chinese admission to the WTO, globalisation essentially morphed into a process for wealthy nations to outsource production to China at the expense of domestic manufacturing jobs.

President Biden’s policies could potentially be intended as a cure for this, reasserting the US’s position as a globalised manufacturer and rewriting the definition of globalisation.

You can hear more about why companies are leaving China in our Loadstar Podcast clip of Marc Levinson, author, historian and journalist.