Did China "Destroy" Globalization?

GLOBALIZATION ARRIVED as a giant paradoxical force that created enormous wealth (particularly for those with stock portfolios), brought millions of developing-world citizens out of poverty, but in the West led to economic hardship among working-class families. According to this view, U.S. politicians in the 1990s made a mistake in giving the premature green light to China's entry into the World Trade Organization. China's failure to play by the rules gradually undermined globalization's political credibility. Now a deglobalization movement is in full force.

China's representatives respond that they are being unfairly blamed for a failure by American plutocratic elites to protect their working class. Western experts in global finance and trade became what economist Rob Johnson calls "marketing agents for the wealthy and powerful," not unbiased experts shedding the light of their wisdom. Chinese leaders counter that they had no power or influence over U.S. distributional failures in the adjustment to globalization particularly when, at the starting gate, the per capita income of China was one-fortieth that of the United States. Why, they say, wasn't China named by the U.S. Treasury as a currency manipulator? Because Walmart, Nike, and other Western corporate giants lobbied to keep the Chinese currency relatively weak. Beijing argues that American corporate selfishness, protected by a compromised meritocratic elite, caused economic injury to so many American working families, not the rise of the Chinese economy.

Do you buy the Chinese analysis? Or is this just "spin" given the Chinese by their ubiquitous Washington, D.C., political advisers?

JAMES K. GALBRAITH

Professor, University of Texas at Austin, and former Chief Technical Adviser for Macroeconomic Reform and Strengthening Institutions, State Planning Commission of the People's Republic of China, 1993-1997

The laws of social physics normally place causes before effects. That being so, if the American deindustrialization that took off in the early 1980s was caused by China, then by inference Ronald Reagan and Paul Volcker were secret agents of Deng Xiaoping. And so were the strong-dollar men Robert Rubin and Larry Summers in the 1990s, not to mention that old China hand George H.W. Bush and his son, George the Second, under whom China finally entered the World Trade Organization. Such things are possible, I suppose. It's also possible that Victoria Nuland takes secret orders from Sergey Lavrov. But the probabilities are low.

Building on the 1949 revolution and on campaigns for literacy and public health under Chairman Mao, China has pursued the most successful strategy of national development in world history, including the eradication of mass poverty and the containment, so far, of Covid-19. Opening and globalization were important, but they were not the sole or even leading drivers of this effort. Credit goes to the pragmatism and determination of the Chinese state, supported by the will and energy of ordinary Chinese people. Globalization did not raise millions out of poverty-most of those millions were in China, and it was China that pulled them out.

Meanwhile in the United States, dreams of military invincibility, of technological and financial supremacy, of national indispensability and world leadership--these things mixed, over time, into a witches' brew of deindustrialization, precarity, and polarization. No Chinese, however observant, however malicious, could have worked out such a scheme. The destruction wreaked by globalization, for ordinary Americans, was an American thing, inflicted by American elites, educated at Harvard and Yale, trained in the trenches of Wall Street and Silicon Valley. Only such great talents could have so successfully destroyed the prosperity of so great a nation.

DESMOND LACHMAN

Senior Fellow, American Enterprise Institute

It is said that success has a hundred fathers but failure is an orphan. The same seems to be true of globalization. While many would like to claim credit for the great post-war economic prosperity spawned by globalization, no one wishes to assume responsibility for globalization's current unraveling.

To be sure, China's repeated flouting of international trade rules has raised serious questions abroad about globalization's fairness. Especially egregious was China's prolonged manipulation of its currency for competitive advantage, its more recent Plan 2025 to artificially promote its high-tech industries through state subsidies, and its systematic resort to intellectual property theft and forced technology transfer.

However, if China's unfair trade policies have eroded support for globalization, the United States should not be the first to cast the stone.

Not only was belief in a rules-based trade system thrown into question by Donald Trump's "my way or the highway" approach to international trade issues and by Joe Biden's failure to roll back the Trump tariffs. Popular domestic support for free trade was undermined by inadequate policy efforts at home to redistribute the large gains from trade toward wage earners. By fueling populist political waves both at home and abroad, repeated boom-bust-cycles through macroeconomic policy mismanagement were hardly helpful in avoiding public displeasure with free trade.

Also playing a major role in globalization's present unraveling have been the once-in-a-century Covid-19 health crisis and Russia's invasion of Ukraine. By seriously disrupting global supply chains, these events have highlighted the downside of increased global integration and have accelerated calls for increased domestic sourcing.

The breakdown in globalization following World War I ushered in two decades of real economic misery. If we hope to avoid that economic fate, we would do better to focus more on the great mutual benefits from international trade rather than to point fingers at who might be most responsible for globalization's current unraveling.

DEREK SCISSORS

Senior Fellow, American Enterprise Institute

China, with ongoing aid from sometimes naive foreign partners, is in the process of effectively destroying globalization. It didn't start this way. In the late 1990s, it was entirely reasonable to support China's accession to the World Trade Organization. The country initiated a second wave of reform in 1992, extending to urban housing and notable modification of the corporate sector. Unfortunately, policy began to tilt away from encouraging competition with the arrival of new Communist Party leadership in late 2002 (after WTO accession) and a burst of state-financed investment that unbalanced the macroeconomy. This tilt worsened by late 2006, when state prerogatives were formalized.

Ascending to Party leadership in 2012, General Secretary Xi and his subordinates have more extensively re-centralized the economy (among other things). They explicitly see globalization as a tool to enhance both control of China and China's position in the world. The aim for nearly a decade has not been to destroy globalization outright but to warp it, such that the benefits to China outstrip those of the United States and others perceived as rivals, such as India currently. Comparative advantage takes on a sinister hue if one side participates only when believing it will achieve the larger gains, otherwise undermining market transactions through large-scale subsidies, state coercion, and theft.

China is of course correct to say, "couldn't have done it without ya." The American business community first acted on the basis of poorly founded hopes of durably open Chinese markets and now consciously elevates shorter-term profits over longer-term. By now, U.S. technology companies know the clock is ticking on market access--Xi doesn't even trust Chinese technology companies. American financiais should not possibly imagine they will be allowed to meaningfully develop the Chinese financial system, which is a core tool of Party control. Yet this summer, these firms are working to shelve policy actions to make supply chains more resilient and ordinary Americans less vulnerable.

Since firms act for shareholders, the ultimate failure lies with the U.S. government. China shot globalization in the stomach, American politicians shot themselves in the foot. Democrats and Republicans have had multiple cracks at controlling Congress and the presidency this century and miserably failed either to protect Americans or punish Chinese behavior. Those purporting to defend open markets became dishonest as Sino-American economic relations became more distorted. They also became more foolish. Donald Trump's protectionism, Hillary Clinton's rejection of the Trans-Pacific Partnership, abandonment of open trade by many Republicans, the Biden administration's fear of trade negotiations--all can be traced in part to watching while China undermines globalization.

The situation is more likely to get worse than better. Xi does not intend to go quietly into the good night. CEOs can aspire to exercise stock options and run before their China business collapses; policymakers have less cover. Globalization could survive in altered form or end with a whimper. But it could end with a bang, blasting an unprepared U.S. economy. Xi's China is the most likely culprit, with many accessories on the other side of the Pacific.

WILLIAM R. CLINE

President, Economics International Inc., and Senior Fellow Emeritus, Peterson Institute for International Economics

To paraphrase Mark Twain, reports of the death of globalization have been much exaggerated. U.S. non-oil imports from emerging market and developing countries rose from 3.7 percent of GDP in 2001 to 6.1 percent in 2011 and then plateaued, averaging 6.1 percent for 2011-2018. In 2019 they were 5.7 percent, hardly "broken."

Similarly, reports of devastation to the U.S. working class from globalization have been much exaggerated. The widely cited estimate of two million jobs lost to imports...