US Secretary of State Antony Blinken File picture: Kevin Lamarque/Reuters
US Secretary of State Antony Blinken File picture: Kevin Lamarque/Reuters

Proposed US Acts target China and may cause a retreat from globalisation

By Helmo Preuss Time of article published May 23, 2021

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The proposed US Strategic Competition Act and Endless Frontier Act are more “sound and fury signifying nothing” playing out for a domestic political agenda, rather than genuine attempts to address the loss of American competitiveness. They target China and may cause a retreat from globalisation and a return to the Cold War bipolar trading system.

While there are some legitimate issues between America and China, the tone of the act is anti-Chinese. The US is gradually reducing its global supply-chain reliance on China.

US Secretary of State Antony Blinken once described China-US relations as “competitive when it should be, collaborative when it can be, and adversarial when it must be”. But this act has made it seem like Washington has abandoned “collaborative when it can be”. The act is pushing China-US relations further towards extreme competition and confrontation.

The trend toward greater global openness appears to have peaked in 2008 as governments moved to a “buy local” economic policy to promote domestic production. These policies restricted imports through tariffs, quotas, other trade barriers, and sometimes, such as in the case of Nigeria, border closures. These protectionist policies, however, have the effect of limiting the scope for global trade-induced creation of wealth, as the tariffs imposed on Chinese goods in America are carried by the American consumer, because in many cases there is no domestic competitor in America that can supply the latest Apple iPhone.

It is self-defeating for the US to engage in a Cold War-style confrontation with China. China is on the rise in terms of governance, international influence and economy, while US strength is decreasing in these aspects. The US now lacks the ability to properly address various domestic problems and can only resort to maintaining global hegemony. This is costly and unsustainable for the US, and will also cause more uncertainties for the international community.

Globalisation resulted in the creation of tremendous amounts of wealth and prosperity across much of the globe, resulting in millions of people escaping from poverty. In particular, the half century from1970 to 2020 saw rates of increased economic integration among many countries as regional trade blocs such as the European Common Market and African Continental Free Trade Area were set up.

Access to global markets supported the industrialisation of emerging economies and opened up new markets for firms in wealthier countries. As a result of the expansion of international trade and competition, consumers in rich and poor countries alike gained in terms of greater purchasing power, better-quality products, and more product choice.

The Chicago Federal Reserve recently published an article on globalisation and it showed that contributions to growing international trade volumes came from multiple rounds of trade negotiations under the General Agreements for Tariffs and Trade (GATT) and the World Trade Organization (WTO). These negotiations led to substantial reductions in tariffs, quotas, and other trade barriers in goods. In addition, standardisation of shipping significantly reduced transport costs and spurred trade in goods. Production managers then saw that economies of scale leading to vertical specialisation reduced costs, while the efficiency of supply chains meant that you need not stock three months’ worth of goods, but only a few days’ worth.

This move to specialisation meant that global trade relative to gross domestic product (GDP), measured by imports plus exports as a share of final global expenditures, rose from only 19% in 1970 to a peak of 55% in 2008 just before the global recession. During the recession, the openness indicator dropped to 45% and remained near 48% in subsequent years. In the case of South Africa, the percentage of foreign trade relative to GDP has moved from 61.3% in 2015 to 55.3% in 2020.

Globalisation has made great contribution to economic growth in Africa. Rising incomes elsewhere in the world have increased demand for African commodities and natural resources, boosting national economies. Globalisation has also supported knowledge transfer, enabling African countries to improve living standards by “leapfrogging” to new technologies.

Any kind of deglobalisation will hurt the world’s emerging economies and scuttle the growth models of poor countries that previously used trade as a path to prosperity.

* Helmo Preuss is an economist at Forecaster Ecosa.

** The views expressed here are not necessarily those of IOL and Independent Media.

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