As an elite group of business and political leaders gathered in Beijing last week to discuss global solutions to issues ranging from climate change to income inequality, one question lingered in the background: is globalisation, which has helped fuel unprecedented growth in China over the past two decades, still viable in its current form?
The New Economy Forum was started last year by Michael Bloomberg, the media mogul and former mayor of New York City, to bring leaders from China and other emerging economies together with leaders from the developed world to craft solutions to problems dogging the planet in an event that would rival the annual World Economic Forum gathering in Davos, Switzerland.
With the event now in its second year, crafting a consensus on how to address broader global solutions has become a much more challenging task as a rivalry between the United States and China has intensified in the past year.
Charlene Barshefsky, former US Trade Representative and a partner at the law firm WilmerHale, said Beijing’s relationship with the West has reached an “inflection point” as China has become a “more able competitor” on the world stage.
“The West’s response is feeble. The US retreats from global leadership, global long-term vision, imposes protectionist tariffs and fails to invest in domestic infrastructure, or its people, and then blames China,” Barshefsky said during a panel discussion at the forum on Thursday. “Technical shifts may de-escalate tension in the short term but will not resolve fundamental differences, which can no longer be papered over. Today’s complexity will require a more credible and much more realistic, effective framework, for East-West relations.”
The global gathering, which started on Wednesday, featured luminaries such as former US Secretary of State Henry Kissinger, Wang Xing, the co-founder of China’s Meituan Dianping, and Bill Gates, the co-founder of Microsoft and the co-chairman of the Bill & Melinda Gates Foundation. Chief executives from many of the world’s biggest banks, including Credit Suisse, Goldman Sachs, HSBC, Standard Chartered and UBS, spoke at or attended the three-day event.
The forum, co-hosted by the China Center for International Economic Exchanges, was in mainland China for the first time this year after being forced to move to Singapore last year because of a scheduling conflict with a prominent trade expo in China.
Bloomberg himself was originally supposed to host this year’s conference, but the billionaire founder of the news and financial data company that bears his name, has begun exploring in recent weeks a bid to enter the race for the Democratic nomination for president in 2020 as the field has shifted to more populist, less business friendly positions.
“It is pretty clear that the old Western-driven models of globalisation need to change, in part because it is not working in western societies, but also because China isn’t aligned with it,” said Ian Bremmer, president of Eurasia Group, the political risk analysis and consulting group.
Speaking at the forum on Thursday, China’s Vice-President Wang Qishan said the international order was “under attack” because of protectionism and populism. He called for the abandonment of a “cold war mentality” in international relations.
Tai Hui, Asia chief market strategist at JPMorgan Asset Management, said the path of globalisation has been “more rocky for some time”, but it is not doomed as business continues to recognise the benefits of free trade.
“Businesses have to be more mindful of these geopolitical factors in planning their investments,” he said. “In the near term, these uncertainties have dampened corporate spending. Yet, in the longer run, we think multinational companies will be more focused on diversifying their production base. Arguably this pushes for more globalisation, not less.”
The conference took place against the backdrop of a trade war that has raged between the United States and China for well over a year. The trade dispute has weighed on global growth and stunted future business investment as the world’s two biggest economies have placed tariffs on hundreds of billions of dollars of each other’s goods.
For example, Sonos, the high-end speaker maker, warned on Thursday it expects its fiscal 2020 pre-tax profit to take a US$30 million hit because of tariffs introduced on September 1 and had accelerated a shift of its supply chain to Malaysia as a result.
US President Donald Trump announced last month that the two sides had reached a “substantial phase-one deal”, but no agreement has been signed as disagreements continue over whether the US will rescind tariffs and Chinese commitments to buying American agricultural products and increasing intellectual property protections.
“If we don’t make a deal with China, I’ll just raise the tariffs even higher,” Trump told reporters on Tuesday.
At the same time, there have been increasing calls among American politicians to limit the ability of Chinese companies to list in the US and restrict American pension funds from investing in Chinese firms.
Former US Treasury Secretary Henry Paulson said a forced decoupling would risk isolating the US or China from the rest of the world.
“If you disconnect from others, you can certainly insulate yourself from some risks. But, frankly, you don’t end up stronger and you create other risks in the process,” Paulson said in a keynote address at the forum. “That’s why it should concern every one of us who cares about the state of the global economy that the positive-sum metaphors of healthy economic competition are giving way to the zero-sum metaphors of military competition.
“And those zero-sum notions – appropriate to the battlefield but not always to the marketplace – are now driving tangible economic policies and meaningful real-world choices.”
James McCormack, head of sovereigns at Fitch Ratings, said the rise of trade protectionism has come hand in hand with a “distinct slowing of global capital flows”.
“Fitch expects the trend that began in 2019 of declining foreign investment outflows from the largest developed countries will continue into 2020,” McCormack said in a research note on Wednesday. “When companies are investing less at home due to economic uncertainty, investing abroad can be even less compelling. This is especially the case if the economic uncertainty is derived from trade protectionism, so that investment assets abroad could be trapped behind tariff barriers that diminish their value.”
That will affect growth and be a negative development for emerging markets, he said.
“Trade tensions are rising around the world, resulting in a dramatic spike in import-restrictive measures.” said Coleman Nee, senior economist at the World Trade Organisation’s economic research and statistics division.
John Woods, chief investment officer for Asia-Pacific at Credit Suisse, said increasing protectionism has been a policy response by the US in reaction to the rise of China. The tensions are likely to endure, but the policy response might not, he said.
“Nevertheless, with the protectionism genie out of the bottle and current reality, businesses and markets will have to continue to contend with this as a real risk,” Woods said.
Parang Khanna, managing partner of the Singapore-based consulting firm FutureMap, said the regional component of globalisation is becoming “much stronger” between Asian nations as supply chains shift and is likely to intensify. He said China now trades more with Asean as a whole than it does with the US.
“At the same time, we still see a surge of truly global trade in the services and digital arenas, as evidenced by the growing presence of Silicon Valley technology companies in Southeast Asia and India,” Khanna, the author of “The Future is Asian”, said. “These countries are not ‘choosing sides’ between the US and China but playing all sides to gain capital from China and investment from the US at the same time, and boost their exports in all directions.”
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