british media: there is no need to choose sides between the west and china
2024-09-22
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an article published in the financial times on september 19, titled: must countries choose between the west and china?the world as we know it is collapsing, we are told — at least the global economy. there is widespread fear that economic ties will become shattered, spurred by geopolitical issues, protectionism and irreconcilable policy differences over issues such as decarbonization and data privacy.
in reality, the world is not “deglobalizing” so much as it is fragmenting into large regional blocs, which continue to converge rapidly. (thus, the imf says, trade is deepening between geopolitically close countries, while trade is slowing between politically distant ones.) the most likely scenario is that supply chains become more organized in the three major blocs centered on china, the european union, and the united states, while cross-border economic activity within each bloc continues unabated.
this situation raises some questions. are the united states and the european union one bloc or two? is it better for supply chains in industries ranging from automobiles to semiconductors to expand globally, or for each continent to leverage the scale they already have? the answers to these questions concern and confront large groups, and they are also closely related to everyone.
however, we should also pay attention to the perspective of the “in-between” countries. these are countries that do not necessarily have deeper economic ties to a particular bloc, such as non-eu european countries with the eu, or mexico and canada with the us. these in-between countries include the vast majority of the world’s developing countries. many of them would face difficulties if the global economy were to split into different blocs.
these countries have done well over the past few decades by largely diversifying their trade relationships. not surprisingly, china’s share of middle-country trade has almost tripled, while the share of rich countries has shrunk. less talked about is the welcome growth in trade among developing countries other than china.
however, it would be a mistake to think that this means that middle countries have moved away from their traditional trading partners; their total trade has grown strongly. this absolute growth has more than offset the decline in the rich countries’ share. so the real story of global trade over the past few decades is that developing countries are trading more with the rich world than ever before, and they are also trading a lot more with china and with each other.
countries are arguably trading more with each other than at any time in history—a fact we should keep in mind when we worry about the end of globalization. but it also presents a difficult choice: if different large trading centers make it harder and more expensive to trade across blocs, which one will countries caught in the middle choose?
the wise thing to do is not to choose. so they strive to maintain good relations with different groups and are concerned about maintaining an open, multilateral world economic order.
if forced to do so, trading economies in latin america, africa or asia would need to tie their fate to one bloc or another, what would their choice be?
geography matters, of course. if the cost of choosing more distant trading partners is to cut off ties with closer ones, then there needs to be a good reason. resource endowments and comparative advantages also matter. if a country has scarce raw materials or expertise, it can more easily maintain relations with other countries.
but the most important factor may depend on the politics of the major trading powers. the economic logic for any independent country to choose the united states, the european union, or china as its preferred trading partner will depend on the economic conditions of each group and the terms of access on offer. there are more immediate monetary and non-monetary benefits, of course. but in the long run, the prosperity gained by being close to prosperous economies will be the most important factor in determining how the global economy diverges.
for many years after the global financial crisis, china has been in the lead in this regard. its economic growth easily surpassed that of crisis-ridden western countries, and china is willing to influence global standard setting through initiatives such as the belt and road initiative. however, the united states and especially the european union have a better starting point than people think. the group centered on western trading powers still has as much weight in trade with intermediate countries as china. (author martin sandb, translated by qiao heng)
