China’s calm necessary for globalization push

By Frank-Jürgen Richter

Global Times, February 17, 2017

Recently Chinese President Xi Jinping stressed that China will uphold globalization and free trade. I believe this is in the best interest of the world’s nations, large or small. Happily, President Donald Trump wrote to the Chinese Embassy in Washington to wish it, and by implication, China, “a good Lantern Celebration” and held a telephone conversation with President Xi. Given the importance of Sino-US trade, and the fact that they are the two economically strongest nations globally, I feel this conversation was a tad delayed. But it took place, and apparently with no discord. President Trump agreed to honor the one-China policy, and together the US and China must continue “high level communications.”

An after-effect arises from President Trump’s demand that jobs should be returned to US workers on US soil. Clearly this impacts Sino-US trade, and with the extensive Sino-US investment. An example often noted are the Apple Inc products assembled in China, which the new US President has asked “why not in the US?” The simple answer is that broadly the US has chosen not to invest in assembly factories in the country, preferring instead lower cost regions. This is a general reaction by prudent managers anywhere looking to reduce costs. Their offshoring decisions are complex in a globalized world as most of the high-tech intellectual property invested in a product is built-in, say in the US, and shipped to China as a sub-component. At the same time not all other sub-components are made in China. China may not have the needed capacity, or Chinese assemblers contracted to Apple themselves suggest using cheaper sourcing in other regions of Asia.

Robotization is a second issue – it transfers jobs to a robot that does not need food or sleep breaks, does not demand wages and is not unionized (a controversial issue in the US). Robotization is a growing global phenomenon as managers look to raise their productivity. No sector is immune and a robot’s precision when coupled with Artificial Intelligence software is very powerful. In older times, economist Adam Smith said “workers displaced would soon find new jobs in the expanding economy created by industrialization.” Today this is not the case, as the global economy has slowed. The short-term goal of many governments is to find jobs for displaced people that are meaningful, not demeaning and socially iniquitous.

More generally it is intriguing to ponder upon the tasks of the attendees in the next G20 meetings and later, the main G20 meeting in Hamburg in July. Ministers are usually tasked to align their nation’s policies based on earlier bilateral talks.

In the case of the US these could not have taken place with the administration change. I can only assume that the pre-G20 meetings will inform the new US officials of the procedures and the wishes of the other nations so that the meeting of Heads of State at the G20 may proceed with understanding. These are simply guesses, but nevertheless we have to consider how President Trump might react at the G20. With whom will he have side meetings, what side deals will he attempt to make and which of his many historic tweets will he affirm or deny? Global well-being depends on firm and consistent accords which in turn demands that a nation’s government is seen to be stable.

President Xi’s assertions about free trade and his previous conversation about the development of China’s relations across Asia and beyond via the One Belt and One Road initiative are consistent. Already China and Europe are exchanging train-loads of goods via railways and roads. These efforts demanded long discussions of a technical nature about the safety of the vehicles and about the laws governing the security and insurance guarantees of each transit State. Now containers on trucks can travel from anywhere in China laden and sealed without any need for local inspections through to Europe. Containers on trains have a similar freedom.

China will continue to discuss trade with the EU through its headquarters in Brussels, and with individual nations, like Germany with its strong export economy, or directly with a few targeted firms to forge “alliances of the willing.”

Such initiative is seen in the China-Switzerland Free Trade agreement, now in its third year. It is not surprising to read that China will be bolstering trade within Asia and Africa via its Belt and Road initiative and with other nations affected by the US’ decision to withdraw from the Trans-Pacific Partnership.

The benefits of globalization accrue to all involved by lifting the nation’s GDP and thus the wealth of the people. China could not have raised millions of its people from poverty had it not been for globalization and free trade. I do not doubt that China’s Belt and Road initiative will be managed carefully – not merely as a simple investment or loan to a foreign government, but as a partnership in free trade and principled leadership.

The author is founder and chairman of Horasis, a Switzerland-based think tank.