A leading Chinese economist says that the current Sino-US trade war was unavoidable given the far-reaching impacts of nearly half a century of globalisation.
An article by Liu Yuhui (刘煜辉) entitled “Trade War is Intrinsically Sino-US Supply-side Reform Competition” (贸易战本质是中美供给侧结构性改革的竞争) published by 21st Century Business Herald points to China as the chief beneficiary of the latest wave of globalisation launched by the West.
“During the process of globalisation China, a country of immense size and utterly unique conditions, has emerged as the greatest beneficiary of globalisation…in other words, globalisation itself has has surpassed the expectations and imaginings of the Western nations that have served as the primary leaders of the current round of globalisation – in particular the United States.”
Liu is chief economist with Tianfeng Securiites, director of the China Chief Economist Forum and a professor at the Chinese Academy of Social Sciences.
While China has benefited immensely from globalisation, Liu points to a hollowing out of real industry and the marginalisation of manufacturing on US soil that as led to a “polarisation” of its industrial structure towards high end, knowledge and technology-intensive industries on the one hand, and high-efficiency agriculture on the other.
“If globalisation is expressed most simply with an economic model, it’s a form of capital arbitrage,” writes Liu.
“Capital can flow freely across borders, yet it’s very difficult for labour to flow freely due to sovereign and political barriers, so the price differential between labour as a factor of production evolves into profit for capital.
“Following the deepening of globalisation, US domestic labour is unable to effectively participate in the productive activity of the international division of labour….as an abandoned demographic, their real incomes and living standards have declined over the long-term.
“The expanding wealth gap has made unsustainable credit expansion the key to maintaining economic growth, yet credit expansion further expands the wealth chasm…in macro-economic terms Western economies face long-term insufficiency of aggregate demand, and could potentially slip into a ‘long-term stagnation trap.’
“After nearly half a century globalisation has today reached an unprecedented height, and the original rules of globalisation are no longer able to accommodate the swelling arbitrage of ‘borders for people, not capital’….this has led to capital flight and class collapse in the West and America.”
Liu views the economic predicaments brought about by globalisation as the chief factor behind the “Occupy Wall Street” movement of 2011, as well as the rise to President Donald Trump on the back of a populist and protectionist agenda, and the launch of the Sino-US trade dispute.
“From this perspective…the ascent of an intensely right-wing group as eventually represented by Trump reveals a historic necessity.
“A Sino-US trade war was unavoidable…this is a historical ‘clearance’ of the past near half-century of globalisation, and at the very list a major marginal correction.
“While the launch of a trade dispute could harm the short-term interests of the US ‘elite’ class who are globalisation’s beneficiaries, from a long-term perspective, however, those of them who are discerning will be inclined towards the side that has been harmed more when weighing up ‘efficiency’ and ‘fairness’ – this perhaps is a stratagem for long-term stability.”
According to Liu while the process of globalisation won’t come to an end over the long-term, periodic reversal are likely, and the current trade war will not be easily resolved.
“The new round of globalisation needs the establishment of new global rules…this could require a considerable period of time.”
For Liu the biggest concern is the impact of the trade war on China’s supply-side structural reforms, which he believes to lie at the crux of the dispute.
“What we are truly worried about is the shock of this trade war on the supply side of the Chinese economy, and the damage to our long-term economic impetus.
“The competition between China and the United States over supply-side structural reforms is likely to be quite a protracted process…this will decide who will obtain leadership rights to the upcoming round of globalisation.”
To this end policy measures advocated by Liu include:
- Reform of the property system to drive large-scale transfer of resources and factors of production from the government sector to the private sector;
- Vigorously containing economic rent – including rents from monopolies and land;
- Allocating profits to the “true creators of value,” as opposed to distributors of value;
- Establishing political protections for a stable monetary anchor.