When China Rules the World

The first concerns American attitudes towards globalization. In the 1990s globalization was seen in the US as a win-win situation, a process by which the US left its imprint on, and gained advantage in its relationship with, the rest of the world. In effect, it was something that the United States exported to the world and then reaped the benefits from at home. [1175] Now, however, globalization is seen more and more like a boomerang that is returning to haunt the US. [1176] Previously, the US was regarded as the overwhelming agent and beneficiary of globalization. Now the main beneficiary is perceived to be East Asia, and especially China. [1177] Through globalization, China has transformed itself into a formidable competitor of the United States, with its huge trade surplus, its massive ownership of US Treasury bonds, its consequent power over the value of the dollar, and the fact that it has undermined key sectors of American manufacturing industry, with growing numbers of workers being made redundant. The widening controversy over the value of the renminbi, the safety of Chinese exports such as food and toys, and the frequent accusations of ‘unfair’ competition, are a reflection of growing sensitivity towards China. [1178] This is not to suggest that the balance of American opinion has shifted significantly as yet. The winners, above all the US corporate giants that have moved their manufacturing operations to China and the consumers who have benefited from China prices at home, still considerably outnumber the losers and in any case enjoy much greater power. [1179] But this could change. The political consequences of spiralling commodity prices, especially oil prices, which were brought to a premature end by the credit crunch, could, if they had continued, have turned American attitudes towards China in a more negative direction. More pertinently, the threat of a serious and prolonged depression is already leading to growing demands for protection. [1180] It is striking that, even before the credit crunch, the number of Americans who thought that trade with other countries was having a positive impact on the US fell sharply from 78 per cent in 2002 to only 59 per cent in 2007. [1181]

In the longer term, as Chinese companies relentlessly climb the technology ladder, the US economy will face ever-widening competition from Chinese goods, no longer just at the low-value end, but also increasingly for high value-added products as well, just as happened earlier with Japanese and Korean firms. [1182] In that process, the proportion of losers is likely to increase rapidly, as will be the case in Europe too. Such a development could undermine the present consensus in support of free-trade globalization and result in a turn towards protectionism, the most important target of which would be Chinese imports. [1183] The impact of the depression, however, suggests that this process may already be happening. If the United States did resort to protectionism, one of the key planks in the Sino-American relationship since the early eighties would be undermined. It would also signal a more general move towards protectionism worldwide and the end of the phase of globalization that was ushered in at the end of the 1970s. The failure of the Doha round is a further indication that this kind of scenario is possible. [1184]