AFP 2016 report: Debunking the Donald on China and protectionism

Many US blue collar workers may feel they are losing out from globalisation, but their counterparts in Asia are also feeling the pain. The continent may be home to gleaming new shopping malls, but move further inland in China and it’s a different story as mass lay-offs of coal miners and steel workers threaten serious social unrest.

Anja Manuel, author of Asia study ‘This Brave New World‘ and Stanford University lecturer, believes that even though US corporations might find forging trading relations with Asia’s powerhouse economies of China and India challenging, they should still persevere. She rejects US presidential candidate Donald Trump’s call for the country to become more protectionist and erect trade barriers against Asia.

In a presentation entitled ‘What the Rise of Asia Means for Us‘, given at the Association for Financial Professionals’ (AFP) 2016 Conference in Orlando, US, Manuel stressed that a US-Asia trade war would only produce losers on both sides. Among the casualties would be Boeing, which counts on China and India for 25% to 30% of its commercial aircraft sales.

Manuel pointed out that both China and India previously enjoyed the status of major world economic powers in past centuries, so regard their recent strong growth as a natural re-emergence towards that prior status. China is determined to command respect on the international stage, while India’s casting off of British rule nearly 70 years ago was accompanied by a determination to never again be exploited by the ‘West’. This meant that the country was closed off to foreign companies until relatively recently when a relaxation in foreign direct investment (FDI) and other liberalising moves have occurred.

Inequality

Manuel’s research for her book included studying at first hand Delhi’s slums, where corrugated huts lack running water, yet form cohesive communities that are kept surprisingly clean. However, inhabitants typically eke out a basic living by scavenging massive trash dumps for recyclable plastics. Despite India’s recent economic ascent, some 280m inhabitants still live below the poverty line on a daily income of US$1.25. Measures to reduce inequality are needed but globalisation can and is growing the economy to make this theoretically possible.

By contrast, China has ‘only’ 80m below the poverty line but has almost no slums. Low-paid workers in electronics or garments factories have the advantages of living in dormitories and receiving a regular pay cheque, meaning that the government can more easily target aid to the most needy than India’s government can.

Corruption

Both countries still have much to do to eradicate corruption, which remains endemic, said Manuel in her Conference speech at the Orange County Convention Center in Florida. However, Indian campaigner Anna Hazare’s anti-corruption initiative in 2011 sparked countrywide protests and persuaded the government to appoint an anti-corruption ombudsman. It also launched a biometric ID system, so that individuals were able to receive payments without the need to bribe a corrupt official.

China has launched an anti-corruption drive from the top down in 2012. Started by Xi Jinping, general secretary of the Chinese Communist party, the motive has been declared as to purify the Communist regime so that its power can be maintained for a further century. The initiative has seen thousands jailed for alleged corruption and Western companies have faced heavy penalties for improper payments.

Environment

China’s persistent smog problem in many regions evidences the fact that the need to power economic growth comes before all other considerations, said Manuel. However, its inhabitants are daring to give voice to their concerns about the environment, with no less than 86,000 protests mounted across the country in the period of just one year. However, a list of the world’s top 20 most polluted cities includes no less than 13 in India.

The pollution challenge is, however, of benefit to US businesses, which have sold US$110bn worth of clean technology to China. The environment is potentially one of the main areas where the US can collaborate more closely with the two Asian superpowers.

Three good reasons to reject protectionism

Manuel offered three major reasons for the US to reject Trump’s protectionist rhetoric and seek closer relations with Asia’s superpowers:

  • The US economy will increasingly be unable to function without interactivity with China and India. The world is now interconnected.
  • The world’s major geopolitical and economic problems can only be solved with Asian cooperation.
  • Both countries need to have seats at the negotiating table if Asia is to remain peaceful

The US could usefully adopt a more relaxed stance towards developments that it might not approve of, advised Manuel. Among these is China’s initiative the Asia Infrastructure Investment Bank (AIIB) which is designed to fund major projects in the Asia-Pacific region.

While China has the ability to fund major projects unaided, the AIIB has enlisted no less than 57 member countries. However, the US has made a point of staying aloof. More productive has been the Obama administration’s success in persuading China to lend its support to the climate change accord signed at the end of 2014, which proved that slow, painstaking negotiations could ultimately result in success.

A clear plea was made for cooperation which delivers mutual benefit to everyone politically and, crucially, economically if protectionist measures are rejected. With the US election imminent, and memories of the anti-globalisation Brexit vote still fresh in the mind, it was a timely presentation. The clear need is to spread the benefits of globalisation more equally if it is to remain in the centre of 21st century political and economic life.

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