IMF Blog — This is the major impact globalization has had on productivity

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In a stinging critique of US economic policy, Ms Lagarde said the country could resolve its trade deficit with the world by curbing public spending and increasing revenue.

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Washington’s recent trade actions are aimed foursquare at China, not at the EU or other trade partners. However, the aim is not to reduce China exports to the US. The aim is a fundamental opening up of the Chinese economy to the Washington free market liberal reforms that China has steadfastly resisted. In a sense, it is a new version of the Anglo-American Opium Wars of the 1840s using other means to open China. China’s vision of its economic sovereignty is at direct odds with that of Washington. Because of this Xi Jinping is not about to cave in and Trump’s latest threats of escalation risk a major destabilization of the precarious global financial system.

There exist basically two contradictory visions of the Chinese future economy and this is what the Washington attacks are about. One is to force China to open its economy on terms dictated by the West, especially by US multinationals. The second vision is one put in place during the first term of Xi Jinping aiming to transform China’s huge economy into the world’s leading technology nation over the coming seven years, a tall order but one Beijing takes deadly serious. It is also integral to the vision behind Xi Jinping’s Belt Road Initiative.

Washington is determined to push China to adhere to a document it produced in 2013 together with the World Bank during the time Robert Zoellick headed it. The document, China 2030, calls for China to complete radical market reforms. It states, “It is imperative that China … develop a market-based system with sound foundations…while a vigorous private sector plays the more important role of driving growth.” The report, cosigned then by the Chinese Finance Ministry and State Council, further declared that “China’s strategy toward the world will need to be governed by a few key principles: open markets, fairness and equity, mutually beneficial cooperation, global inclusiveness and sustainable development.”

Referring to the current Washington strategy of imposing import tariffs on billions worth of Chinese products, Michael Pillsbury, a neo-conservative former Trump Transition adviser and China expert told the South China Morning Post, “The endgame is that China complete its deep reforms of its economy as laid out in the joint report,” referring to the World Bank Zoellick China 2030 report....

The stakes in this latest confrontation from Washington are far too high to expect Xi Jinping to back down to US pressure and open its economy according to Washington demands. That would not only jeopardize China’s economic strategy. It would also cause Xi Jinping to seriously lose face, something he is not inclined to do. Headlines in recent Communist Party state media indicate the mood. The lead story in Peoples’ Daily declares, “Bravely unsheathe the sword, have the courage to oppose, stab at the heart of the snake…” It continues, “a trade war will hurt America’s low-income consumers, industrial workers, and farmers…the main supporters of Trump.”...

In effect, Washington and the latest trade salvos are intended to tell China to keep its place in the US-version of a globalized liberal world where the state is not allowed to play any significant role, one where decisive power is held by a multinational corporate elite. Xi Jinping, having just consolidated his position with no restrictions on his term and consolidating his role as no previous Chinese leader since Mao, is not about to revert to what China sees as bowing to foreign pressures on its economic sovereignty.…

An April 3 editorial in the official Beijing Global Times suggests China has no intent to back down or revert to the World Bank agenda. It declares, “Washington wanted to demonstrate its authority to the world, but unfortunately it gambled badly. The entire US elites have overestimated the strength and execution.” The editorial continues, “There is no way for the US to rebuild the hegemony that elites in Washington picture. As globalization and democracy have dented the foundation for that hegemony, the US lacks the strength, will and internal unity needed. In fact, the US has found it difficult to subdue Iran and North Korea, not to mention major countries like China. Washington cannot rule the world as an empire.”...