Blog Strong China-US link crucial in uncertain times

Strong China-US link crucial in uncertain times
A key characteristic of the post-Trump, post-Brexit world is a causal link between global trade dynamics and slower economic growth, and a rise of nationalism and populism.

The disparities caused by globalization may have given rise to a protectionist backlash that resulted in the election of President Donald Trump, Brexit and the rise of nationalist parties across Europe.

“We’ve had 10 years of very low growth in Europe, the United States and the United Kingdom,” said the Rt. Hon. Sir John Major KG CH, former Prime Minister of the United Kingdom, during the 20th Credit Suisse Asian Investment Conference (AIC). A knowledgeable and incisive observer of global developments, he drew a clear line between the rise of populism and economic slowdown.

“There are an awful lot of people who are very critical because unemployment is high. Whenever that happens [high unemployment], the traditional response is that it is all because of immigration, it is all because of foreigners,” he said. “I don’t think globalization is going to end, but I do think it is suffering an attack.”

Perhaps tellingly, the anti-globalization movement is coming out of Western countries at a time when traditional patterns of global influence are shifting.

“The global axis on which the world turns used to be the West. Now it is Asia.” said former French President Nicolas Sarkozy, speaking at the AIC.

Another keen observer of geopolitics, Sarkozy said it’s time to rethink how global affairs are managed and do away with the idea of a unipolar or bipolar world. At a practical level, this would mean fewer but more effective international organizations and more countries taking responsibility for global issues.

“We need a new world order in which China agrees to step up and deal with world problems,” Sarkozy said.

It is difficult to overestimate the role of China in these changing global dynamics both as a driver of economic growth but also as a perhaps-unwitting source of domestic tension elsewhere.

Chinese trade has had an outsized impact on the global political paradigm, said Credit Suisse Chief Economist and Head of Fixed Income Research James Sweeney. China has built itself into an export powerhouse, ensured one of the greatest economic expansions in history and generated large trade surpluses, but it has also fueled populism and protectionism elsewhere.

“China is not buying a lot from the rest of the world. It’s selling a great deal to the rest of the world,” said Sweeney. “And the reality is that this puts a strain on the politics. This creates pressure for protectionism and I think it has helped to push some of the populist movements that we have seen.”

In few places is this as visible as China’s relationship with the US. Since the election of President Donald Trump, the US has seen something of a U-turn in its approach to global trade and China. Any policies the Trump administration enacts regarding China are certain to have huge global impact.

The most effective way for President Donald Trump to showcase the success of his protectionist policies may be to achieve a balance in US trade with China, noted Professor Jing Huang, Lee Foundation Professor on US-China Relations and Director of Centre on Asia and Globalization at the Lee Kuan Yew School of Public Policy in Singapore. “I am not as pessimistic about the US-China relationship. I am actually quite optimistic.”

Ultimately, domestic politics in places like the US, UK and Europe, not to mention in Japan, China, India and other countries in Asia Pacific, may have a huge impact on global politics. And the biggest impacts may be most felt back in the realm of economics and trade. Once again, the US-China relationship will be pivotal.

“If a full-scale trade war happens, it will not be because of economic reasons; it will be because of bigger reasons,” said Vincent Chan, Head of China Macro Research at Credit Suisse.

As all these tensions rise to the forefront, however, a long-term view may be reassuring.

“The populous upsurge you’ve seen in a number of places is a swan song for old-fashioned nationalism,” said Robert D. Kaplan, Senior Fellow at the Center for a New American Security and Senior Advisor to the Eurasia Group. “We live in a world in which hundreds of millions of people live in a country that is not their country of origin. Over a billion people each year cross at least one international border. This is not a world that is retreating back into old-fashioned, solid-state, nation-state nationalism.”

The problem, said Kaplan, is that “technology has not defeated geography, it’s just shrunk geography.”

“The more the integration, the more the instability,” said Kaplan. “For 75 years, the US has been the engine leading a liberal world and trying to create a new one in Europe and Asia. It is not clear that that engine will continue as it has.”

And an even longer term view may be more reassuring still.

“The transitions we have seen in world history have always been through multiple generations,” said historian Dr. Peter Frankopan, Senior Research Fellow at Worcester College in Oxford. “Globalization is not something new, despite the fact that politicians try to use it to diagnose problems in the world.”