Scott Friedman
Globalization has been a defining feature of our times. For decades, as the United States shifted to a service and information economy, low-cost goods from China filled our Walmart carts and, later, our Amazon boxes. As shipping rates declined and overseas manufacturing capacity swelled, Americans traded factory jobs at home for imported consumer goods. This was assumed to be the natural order of things.
Until it wasn’t.
A concern that started as a fringe chorus of “China hawks” ringing the alarm bells on the risk of offshoring production was brought center stage by the global coronavirus pandemic, which laid bare the fact that great power competition is now at the forefront of not only politics but business as well. It has forced corporate boards to realize that this competition would play out in the commercial markets in an unprecedented way. One by one, the underpinnings of our consumer economy have been pulled into the fray as U.S. political leaders on both sides of the aisle articulate the growing need to “decouple” our economy from China’s. The view on the street, and in many capitals around the world, is that the United States is driving the unwinding of a twenty-year experiment in lashing the world together through unfettered economic ties.
But what if the end of globalization actually begins in China? With rising inflation globally, unsteady economies still reeling from coronavirus, and a demographic cliff coming, it seems reasonable that the Chinese government will take steps to shore up its domestic economy by erecting walls around it. In fact, we already see indications of this in certain sectors. By now, the world is wise to the Chinese Communist Party’s practice of inviting corporations into China with the promise of massive market opportunities, only to force joint ventures and abruptly cap the foreign company’s market share while championing home-grown producers and manufacturers that not only service their domestic needs but also export and compete globally.
As China looks inward, its leaders may be coming to the realization that the global economy might be incompatible with their goals. Policies such as “dual circulation,” which accelerate domestic independence by requiring self-sufficiency first and exports second, offer a window into what a gradual end to global trade as we know it might look like. Even though it’s unlikely that sweeping protectionism will drop like a veil overnight, we can look to China’s new requirements on the medical industry to anticipate how this slow-motion decoupling could play out.
Over the course of the last year, regional authorities have required Chinese medical companies to buy from local suppliers and limit the sourcing of components in the end-use medical equipment to domestic Chinese firms. This is a critical change for a market that is dominated by Western technology firms and believed to be one of the most profitable sectors of the global economy as the population ages. If these regulations are enforced, foreign companies will be at the back of the line to source from China while also being boxed out from meaningfully participating in the Chinese market.
While these steps are unlikely to build a “Great Wall” around the second-largest economy in the world, they may presage a larger shift in the global economic order, one that prioritizes domestic jobs and self-sufficiency over ever-cheaper consumer goods. Those who predicted the decline of globalization may have been right. They just misjudged where it would start. The United States and like-minded countries around the world must reckon with the reality of the demise of globalization, however, they should come to terms with the view that China might actually be the prime catalyst.
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