A Review of China-U.S. Relations under Globalization in the Post-COVID-19 Epidemic

Zhou Qi

International Security Situation

A Review of China-U.S. Relations under Globalization in the Post-COVID-19 Epidemic

Zhou Qi

Dean of Global Governance and Development Research Institute, Tongji University

A general forecast is that the whole world will become a quite different one after the novel coronavirus pandemic comes to a basic end. This seems certain. In fact, before the pandemic outbreak, the world had been undergoing some significant changes, and there are signs that those factors that cause the changes will be further amplified. So an issue - where globalization will go - that has been concerned in the international community since President Trump took office becomes a prominent point of focus. What will be the fate of globalization in future? What kind of international development environment will China have that has been greatly benefited from globalization? What will happen to the Sino-U.S. relations under such an environment? These will be important issues that we have to face up.

Developing countries are benefited most from globalization

In the past 30 years or so, globalization has been acknowledged as the main line and trend of world development. Globalization is regarded as an objective process, which is manifested from the perspectives of information, finance, economy, trade and exchange, as well as the integration and unification of global economy, politics and culture. How will globalization affect people living all over the world? In his initial assessment of globalization, Joseph Stiglitz, an American Nobel Prize winner and economist, focused on the destruction of globalization to the global economy. He once believed that the world's poorest countries were the main victims of globalization. These developing countries' population accounted for 85% of the world, but their income only accounted for 39% of the world's total income. The most affected countries are sub-Saharan Africa, whose per capita income is only 2.5% of that of the United States. In the face of globalization, these countries have no choice but to participate in it and become part of the globalization system, or to be excluded and abandoned.

Since the end of the Cold War, great changes have taken place in the global economy. The year 1989 is not only a year of upheaval in Eastern Europe, but also a year when Japan suffered the largest financial crisis in its history and the Soviet Union experienced the severe recession of its economy. These two economic powers in the eyes of the United States can no longer be the economic competitors of the United States, and the status of the United States as the richest superpower in the world seems to be unshakable. By 1992, the U.S. GDP accounts for 26% of the world's GDP, the United States controls about half of the effective patents, and has no need to worry about the competition of other countries, so it deals with the international economic problems with the posture of promoting globalization. According to a famous Russian economist, the United States helped Mexico get out of the debt crisis in 1994, avoided setting any restriction on cheap Asian imports after the Asian financial crisis in 1997-1998, and in 2000 welcomed China to accede to the WTO under the Clinton Administration, and allowed it to join as a developing country.

Actually, globalization is developing with a completely different feature from Stiglitz's original focus, i.e., having promoted the rapid economic growth of developing countries. From 1991 to 2015, more than one billion people in the world were relieved of poverty, of which 75% were from Asia. In the year 2009, China became the world's largest commodity exporter; in 2010, China surpassed Japan as the world's second largest economy after the United States, and became the largest industrial producer; in 2014, China's per capita GDP measured by purchasing power parity (PPP) (in 2011 constant price of international money unit), ranked first in the world. From these data, it can be said that Asia, especially China, is the biggest beneficiary of globalization and the international economic system reflects globalization. The United States has not ignored the rapid economic growth in Asia. In the late stage of the 10-year anti-terrorism war since 2001, the United States has realized that the global political and economic center is shifting to the Asia-Pacific region, which is the most dynamic region in the global economy. Therefore, since 2010, the United States has begun to shift the focus of its global strategy to the Asia-Pacific region, whose economic intention is to participate in the rapid economic development in the Asia-Pacific region.

However, it is in the process of globalization that the relative strength of the United States begins to decline. By 2018, the U.S. share of global GDP fell to 15.1% in terms of PPP purchasing power parity, and its trade deficit increased from US$31 billion in 1991 to US$622 billion in 2015. Asian countries as a whole have become the largest holders of foreign exchange reserves (the mainland of China, Hong Kong and Taiwan regions, South Korea, Malaysia and Thailand together have more than US$4.65 trillion of foreign exchange reserves), while the United States has become the largest debtor in the world.

To this day, Stiglitz admits that he greatly underestimates the impact of globalization on developed countries. Not only the factory workers in the rust belt in the Midwest of the United States, but also a large number of middle-income and low-income wage earners in the most advanced industrial countries in the world have become the victims of globalization. In the past 30 years, the improvement of livelihood of these people has remained stagnant. While the mortality rate in other regions is declining, due to social decline and economic inequality, the mortality rate of middle-aged white men in the United States is increasing due to alcoholism, suicide and drug abuse. Americans who could have bought their own homes, sent their children to college and retired safely can't do now. They show indignation about these.

The changed American attitude towards globalization

Since the end of the Second World War, the United States has led the process of eliminating trade barriers and establishing a global and regional trade system, which has played a crucial role in shaping the global trade system. Since the late 1980s, the United States has promoted the conclusion of many multilateral and bilateral agreements that constitute the framework of globalization. For many years, the United States believes that these trade agreements will bring stronger growth for its economy and greater opportunities for American workers and enterprises, but it is disappointed. After President Trump took office, the United States began deep reflection. In March 2017, just two months after Trump took office, the U.S. government released the President's National Trade Policy Agenda 2017. According to the document, since 2000, a year before China's accession to the WTO, various economic indicators of the United States have been deteriorating: GDP growth has slowed down, employment growth has been slow, the number of people employed in manufacturing industry has decreased substantially, and the trade deficit has increased. Specifically, in January 2000, the number of manufacturing jobs in the United States was 17.284 million, which was roughly the same as that in the early 1980s. However, by January 6, 2017, the number of manufacturing jobs in the United States was only 12.341 million, and the number of unemployed was nearly 5 million. In 2000, the real household medium-income (in 2015 dollars) in the United States was $57790, which dropped to $56516 in 2015, less than 16 years ago. During the 16 years before China's accession to the WTO, from 1984 to 2000, American industrial production increased by nearly 71%, while American industrial production increased by less than 9% from 2000 to 2016, not to mention that the U.S. trade deficit with China has doubled. The document concludes that the current global trading system is good for China, but has failed to bring about the same benefits to the United States since 2000. These analyses lead the Trump Administration to believe that the United States has disadvantage in the global market due to unfair trade, and globalization has damaged the United States.

Trump is a firm opponent of globalization. He once quoted the Research Report of the Economic Policy Institute, a think-tank in the United States, claiming that "since the signing of the North American Free Trade Agreement, the United States has lost nearly one third of manufacturing jobs, while since China's accession to the WTO, the United States has lost 50,000 factories." In addition, according to the think tank, from 2001 to 2013, the trade deficit with China cost 3.2 million jobs in the United States, of which 2.4 million came from manufacturing sector.

In this context, the domestic public opinions of the United States also begin to change. In the past, economists with different political views in the United States generally believed that trade is a key tool to promote economic development, which can promote social prosperity and political freedom. The role of trade in promoting the U.S. economic development is also generally recognized. But a 2017 Gallop poll showed that Americans are increasingly skeptical of free trade, with 71% of Americans saying it is "very important" to promote "favorable" (rather than free) trade policies, and Republican voters are more negative about free trade agreements than Democratic voters. In 2015 and 2017, two researchers from Indiana State University found that about 13.4% of manufacturing unemployment was caused by trade in 2000-2010, but their research also concluded that nearly 88% of manufacturing job losses in recent years was caused by productivity growth. But the latter conclusion, i.e. productivity growth is a key factor in the cut of American jobs, has received little attention.

Globalization does bring about the phenomenon that the total income of developed countries has increased, but some jobs are lost to foreign countries. The basic feature of economic globalization is the global allocation of capital, resources and labor. Driven by the capital profit-oriented practice, companies in developed countries tend to invest in building factories in developing countries with low cost, which creates a lot of jobs for the investment target countries, but at the same time creates very limited number of jobs for the United States. Take Apple Corp. for example, according to several research reports in 2012, the U.S. company, which ranks first in global market value, directly employs 47,000 people in the United States and "creates or supports" 514,000 U.S. jobs, including nearly 500,000 people who participate in software design and retail networks work at its headquarters in California and FedEx, and employees of United Parcel Service Inc., or UPS ( to deliver its products）, and Corning's glass panels for iPads and iPhones. But at the same time, other analysis reports from companies such as Business Insider and Bloomberg, etc. revealed that under the competition of Apple products, other related companies in the United States lost a total of about 490,570 jobs by the competitive "destruction". The reports also found that Apple, by contrast, has created about 700,000 jobs overseas by developing networks of suppliers for iPhones, iPads and other products. It is obvious which kind of countries will benefit from such a trend.

In some cases, the hollowing out of manufacturing and the decline of the rust belt economy in the United States have sometimes reached astonishing levels. Detroit, once the location of the three major U.S. auto companies and the symbol of the strong economic strength of the U.S. manufacturing industry, filed an application for bankruptcy protection to the U.S. Federal Bankruptcy Court in July 2013, which became a typical example of the consequences of hollowing out of the U.S. manufacturing industry. The city became deteriorated with the decline of American automobile industry. In 2008, the financial crisis gave Detroit another fatal blow. Three major auto companies cut 140,000 jobs. The urban population decreased from 1.8 million in 1950 to 700,000 in 2013, and decreased by 250,000 in just 10 years from 2000 to 2010. Due to the reduction of taxes and government revenue, since 2008 the municipal government has to borrow to fill the fiscal deficit, with a total debt of US$18 billion to US$20 billion; the urban public services are almost paralyzed, with an unemployment rate of 18.2%, which is more than twice the average level in the United States at that time; more than one third of the population lives below the poverty line; the public security in the urban area is deteriorating, with frequent robbery, theft, carjacking and shooting cases. In addition to spending cuts and the issuance of city construction bonds, the Detroit municipal government also are forced to sell an airport and parks to pay for the debt. Until 2018, there was no sign of a full recovery in Detroit's economy. In this year, Detroit's per capita real income ranked the last in the core cities of the 53 largest metropolitan areas in the United States, which was only US$14,523 annually, about a quarter of San Francisco's $55,366.

Indeed, the global market driven by technological innovation has not benefited some population in developed countries. Michael Spence and Sandile Hlatshwayo, two professors at the Stern School of Business, New York University and Nobel Laureates in economics, published a research report entitled "the Evolving Structure of American Economy and the Employment Challenge" in early March 2011. They concluded that the unemployment problem in the United States was caused by a particularly effective global market. Many Americans do not benefit from the global market, especially those with medium-skilled jobs are victims of low wage costs overseas. The less developed countries begin to produce products with lower cost and higher quality than those in the United States. Although this will bring the positive effect of cheaper consumer goods, it will also bring the negative effect of distribution. Within countries, inequality is likely to increase; and the success of emerging economies is achieved at sacrifice of some rich ones between countries.

David Autor, an economist at MIT, points to a similar problem. In his view, on the whole, the benefits brought by trade and technological progress are obviously greater than the disadvantages produced, but they also bring great losses, which will fall on some workers. The loss of jobs to overseas has polarized the U.S. labor market, i.e. the opportunities for higher-level jobs (professional, technical and management occupations requiring higher-level education) and lower-level jobs (jobs in the catering and service industries without higher-level education) are increasing, but the opportunities for middle-level jobs, including middle-level technicians, white-collar employees and managers, marketing people, as well as medium-skilled, blue collar workers, crafts men, etc. are decreasing. The U.S. subprime crisis in 2008 and the European debt crisis two years later have further exacerbated this long-standing problem.

Free trade, free capital flow and population migration can improve the overall welfare of various countries in the world, but the welfare growth is not evenly distributed, and they will damage the interests of some countries and some groups in a country at the same time. It is not hard to understand why the United States and other western developed countries have been the main promoters of globalization since the 1990s, but some of them have become strong opponents of globalization 30 years later, while developing countries such as China have become one of active supporters of globalization.

The anti-globalization deep-rooted in developed countries

Globalization and free trade can improve the utilization efficiency of global resources and promote the growth of economy and income, which can be confirmed by the rapid growth of world trade volume and economic aggregate in more than half a century. However, free trade has two most important defects for the economic development of the United States. First, free trade can lead to unemployment and lower incomes for certain groups. When resources are allocated and division of labor is carried out globally, the market competition pressure will be much greater than that only carried out within one country. In order to reduce the cost of production, enterprises move out or outsource one after another product, so that the workers in developed countries must compete with the workers in developing countries who have much lower level of welfare. Market competition from other countries has accelerated the hollowing out of American industries, especially the manufacturing sector with white blue collar concentration. What's more, because most of the affected workers have no higher education, and the cost of shifting to different industrial jobs or moving away is often very high, the result is likely to lead to higher unemployment rate and lower income of residents in the affected regions, and the impact on workers with lower education and less income is even greater.

Second, trade has an important income distribution effect, which is often covered by its economic efficiency. In theory, free trade can improve global total output and overall welfare, but it does not guarantee that all people can benefit from it or to the same extent, but it will lead to the benefit of some people and the damage of others. Due to the redeployment of employment and production by working capital in the world economy, trade strengthens the pressure of international competition, the global financial system limits the welfare and redistribution capacity of countries, and globalization intensifies the economic inequality between and within countries. Francis Fukuyama highlighted the issue after Trump's victory, noting that the benefits of a rules-based international trade and investment system that has driven global growth in recent years "have not reached all populations at all levels. The working class in developed countries has lost their jobs as enterprises outsource to cope with the fierce competition in the global market and improve efficiency as much as possible. "

Trump took a clear stand against globalization and fiercely attacked free trade and immigration. Politicians in the United States have been sparing no effort to pursue globalization, he said that globalization has made financial elites rich in gold and silver, but it has brought poverty and heartache to tens of millions of American workers. Trump's election is a victory for the middle and lower class white people who think they are suffering from free trade. They think that they are abandoned by the post- industrial economy created by high-tech development and the economy based on the financial industry. Therefore, they become the most fierce opponents of free trade and the most determined supporters of Trump's de-globalization policy and "America First" policy.

On March 16, 2020. U.S. equities plunged on Monday with the Dow Jones closing down about 3,000 points, as fresh stimulus measures from the Federal Reserve failed to calm markets amid intensifying virus fears. The Dow Jones Industrial Average cratered 2,997.10 points, or 12.93 percent, to 20,188.52. The S&P 500 fell 324.89 points, or 11.98 percent, to 2,386.13. The Nasdaq Composite Index was down 970.28 points, or 12.32 percent, to 6,904.59. (Photo by Michael Nagle/Xinhua)

The deepening development of globalization has brought many people optimism, just like the development of the European Union, they think that national sovereignty and national sentiment will gradually get weakened, and identity will be transferred from a national state to a supranational state or global level. But the reality is far from that. Trump's "America first" principle, Britain's "Brexit" and the rise of far-right force in European countries all prove that deepening globalization has stimulated populism instead.

Many researchers are aware that to respond to the negative effects of globalization on developed countries, government needs to adopt positive domestic social and economic policies, such as preferential tax policies, sound social security, vocational retraining for the unemployed and so on. But these are not the concerns of the current U.S. administration, which is determined to fight for the interests of the United States by suppressing its competitors internationally. The improvement of the U.S. economic situation can benefit the whole Americans, but can not solve the existing problems of income distribution disparity and social inequality in the United States, including the plight of low-income groups. In this regard, the United States has always looked down on the practice of Western European countries to exchange efficiency for welfare state and income equality, so it has done far less than the latter. And, as Quentin Skinner, a historian, points out that a welfare state requires very high tax rates to maintain public services, while American politicians cannot persuade voters to bear the cost of a welfare state.

Therefore, it should be emphasized that the de-globalization trend in the world is not mainly originated in the efficiency of the global governance system itself, and the optimization process of global governance cannot solve domestic problems of various countries. As for the United States, on the one hand, there are phenomenon such as the continuous growth of the national economy driven by the development of science and technology including artificial intelligence, on the other hand, the widening gap between the rich and the poor, the continuous deterioration of the livelihood of the middle class and the working class, the increasing education costs, and the crisis of national identity, etc. As long as this social situation is not improved, there will be anti-globalization force in the United States, and ordinary people will also spread their grievances on China under the instigation of some politicians. This sentiment will naturally be reflected in the results of the U.S. election and the foreign policy of the president-elect.

Possible economic and technological decoupling between China and the United States

Compared with the Republicans, the Democrats in the United States hold a more positive attitude towards globalization. Based on this attitude, they are more willing to cooperate with various countries, including China, on global issues, especially on non-traditional security issues such as climate change, nuclear non-proliferation, epidemic infectious diseases, etc.; because they are more in favor of free trade, they are not as fierce as the Trump Administration with daggers drawn on international trade issues. However, although Democrats resent President Trump's domestic and foreign policies, yet, many of them driven by ideology hold similar positions with the Trump Administration on national security issues, i.e., China is the biggest strategic challenge of the United States, which is prominently reflected in the human rights issue, the Taiwan issue and the South China Sea issue, etc. Therefore, no matter what happens in the upcoming general election this year, Sino-U.S. relations will be difficult to regain the previous momentum.

During the epidemic control, the United States and some Western countries continue to smear China's efforts and achievements in fighting the epidemic, in addition to Trump's covering up of his failure to deal with the epidemic crisis in order to achieve his campaign objectives, and also because many politicians in these countries are worried that China may show stronger national governance ability than the West through effective efforts against the epidemic, thus highlighting China’s superiority of political system. Western journalists keep asking Fukuyama about this question, and Fukuyama’s answer probably represents a more moderate point of view among Western scholars: he admits that the Chinese model has outstanding performance in this epidemic, and that the Chinese model is the most successful one among non-Western models, and a mixture of state intervention and quasi-capitalism. But in his view, there is no inevitable link between the state system and the outcome of the fight against the epidemic. What determines the performance of each country is its national capacity and health system. China's regime is more able to deal with emergencies, but this does not prove the superiority of China's system, because: first, countries under the Western democratic system also have successful anti-epidemic ones, such as Germany and South Korea; second, China has a long history of power concentration, which is reflected in Japan, South Korea and other neighboring countries to varying degrees, but this model cannot be copied by countries outside Asia, such as Latin American countries.

Because the epidemic has delayed the supply of industrial chain in a certain period of time, which becomes more convincing for some developed countries to withdraw investment from China or transfer production to destinations outside of China. Some countries have already done so publicly, for example, the U.S. government requests American enterprises to move back home with preferential policies, and the Japanese government proposes that Japanese enterprises consider moving some factories away from China to reduce the risks of single supply chain. Many economists at home and abroad have commented on this kind of action, pointing out that the reconstruction of traditional industries in the United States needs to pay a huge price; the labor cost in the United States is too high; even the restoration of traditional industries will not create many jobs under the conditions of mechanization and automation; moving the industrial chain out of China will increase the cost of infrastructure-reconstructing in other countries, and may face poor investment environment; and most importantly, that may lose the vast Chinese market. Because of these reasons, it is difficult to achieve a comprehensive economic decoupling.

On this issue, Fukuyama thinks that globalization had reached its height before the epidemic outbreak, and the outbreak prompted many Western countries to consider curbing globalization. However, when many companies intend to adjust the supply chain scattered around the world in order to optimize resources, it is undoubtedly absurd to think that self-sufficiency can be achieved by transferring industries back to their home countries in the whole economic field. Although anti-globalization is very likely to occur, it is only the degree of globalization that may see some changes. In other words, globalization is still a major trend, although the level of globalization may be reduced by some developed countries' anti-globalization actions. It is also suggested that there might be so-called "pluralistic globalization" to occur.

More and more people in the world are worried that the increasingly fierce technology competition between China and the United States may lead to the separation of technology standards. Finally, Europe, North America, South America and Australia mainly adopt the technology and standards of the United States, while Asia, Africa and the Middle East adopt the technology and standards of China. Many people are arguing that the global competition between China and the United States on 5g standards may be an early sign of this decoupling. The innovation competition between China and the United States in areas such as 5g will run the risk of separated technology, which will influence the next generation mobile standards, spectrum allocation and deployment in key markets and regions by introducing 5g networks. If trade tensions between China and the United States intensify and the United States tries to restrict China's market, which may lead to the formation of two incompatible 5g ecosystems: one may be led by the United States and supported by technology developed by Silicon Valley, and the other may be led by China and supported by its powerful digital platform companies. In this scenario, China's market is mainly concentrated in developing countries, where technology construction resources are limited; while American companies will mainly conduct business in developed countries with fierce competition among them. Taking into consideration the current signs, this situation is not unimaginable in the future.

In view of the above-mentioned, we must make preparations in terms of thinking and policies for a more difficult stage of Sino-U.S. relations in the post-pandemic period. Because of the existing social and economic problems in the United States, the U.S. government will not back out on the road of de-globalization unless it really experiences the bitter results, and the national security strategy that regards China as the main strategic competitor will continue. Therefore, China should take corresponding measures to properly respond to the possible economic decoupling and maximum technological decoupling between China and the United States.

(Edited excerpts of the article in the Contemporary World, May 2020)