Readjustment instead of regression

Globalization is adjusting as the United States adapts to changes in the global economic landscape

Although it is facing strong headwinds at the moment, it is over-exaggerating to say that globalization is regressing. Rather, it is undergoing a period of readjustment.

The last round of globalization had three main features. First, the global economy realized real integration after the end of the Cold War. Second, China has become the world's second-largest economy changing the global economic landscape. Third, the US economy has become increasingly more reliant on the financial sector. The Financial Services Modernization Act of 1999, which eliminated restrictions on mixed banking activities, led to a boom in the US financial sector. In fact, this may be the biggest problem of the US economy.

China's status in the world economy has continued to grow since the international financial crisis roiled the world in 2008/09. China's GDP was only 34 percent of that of the US in 2009, but the ratio grew to 68 percent in 2019.

This means that China's growth rate in nominal terms was 7.2 percent higher than the US on an annual basis. If calculated in US dollars, the Chinese economy has grown 10 percent every year. Only 37 of the Fortune 500 companies were Chinese in 2008, but today there are now 124 Chinese companies listed among the Fortune 500 companies, exceeding the number of US companies.

In areas such as artificial intelligence, robotics, mobile communication and digital finance, Chinese companies are at a level comparable to those of the US, and they have even surpassed them in some specific fields.

What China has to be aware of is that many of the US actions are not specifically targeted at China. As a global leader for so many years, it is natural that it needs space to make some readjustments in response to the fast-changing world.

The US has paid a big price over the years to build and maintain the world trading system. For instance, the World Trade Organization rules have played a big role in the growth and integrated development of the world economy, and under such rules, the US has become the country that relies on China's products the most. But now, the US's domestic economy and politics are becoming polarized with 1 percent of the richest people in the country controlling over 30 percent of total wealth and the lower 50 percent of the population seeing no substantial income growth over the past five decades.

The government has not implemented any substantial adjustment for redistribution, nor has it pursued any reform. This has led to the increasingly polarized situation in the US.

Such domestic polarization has sapped the US' energy and financial strength to maintain the global economic order as it used to. So it keeps withdrawing from multilateral organizations. However, that does not mean the US is relinquishing its leadership role.

The US remains the world's strongest country and is eager to maintain its global leadership. At the same time, China is not likely to replace the US to become a world champion in the short run. Withdrawal from international organizations is only a strategic retreat by the US. What it wants is to rebuild the world system to secure its leadership status.

Dani Rodrik, Ford Foundation professor of international political economy at the John F. Kennedy School of Government at Harvard University, Jeffrey S. Lehman, vice chancellor of New York University Shanghai and I initiated an open letter signed by 37 scholars on Oct 28, 2019, in which we argue that readjustments in globalization are necessary and policies should be evaluated in two categories.

In the first category, countries should put an end to their beggar-thy-neighbor trade policies, including restrictions on exports－for instance, the US should terminate such policies as restrictions on Chinese products, low-price dumping, competitive depreciation and subsidies for cross-border mergers and acquisitions. All policies that get gains at others' expenses should be stopped.

In the second category, domestic policies should be treated as negotiation items. The US should be aware of the fact that there has to be some government involvement considering China's current development stage. On China's part, it should also realize that the US needs some room for readjustment to cope with the huge influence brought about by China's rapid rise.

In its own right, China should commit to safeguarding and promoting an open and integrated global innovation system. It should take an active part in WTO reform and help put in place new rules. When it comes to issues such as subsidies and developing country status, China and the US should sit down and have in-depth talks. At the same time, China should give the full play to market forces except for key strategic industries.

A complete decoupling of the two economies is not possible. The trade talks have not come to an end. The US wants China to buy from it, and China needs US' energy resources, soy beans and aircrafts. The pandemic may only postpone the scheduled implementation of the plan from two years to three or four years.

China and the US should do their utmost to secure a co-competitive relationship, as this is in the best interests of both countries and the rest of the world.

The author is the dean of the National School of Development at Peking University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.