China could have most to lose as crises end globalisation era
- Globalisation’s defences are crumbling amid climate change, pandemics and the war in Ukraine
- Mounting geostrategic tensions are the wild card, with ‘friend-shoring’ efforts and scrutiny of Sino-Russian ties raising the stakes for China
These developments raise the pressure on China, arguably the country that has been the greatest beneficiary of modern globalisation.
Of the many metrics of globalisation – including financial, information and labour flows – the cross-border exchange of goods and services is most closely tied to economic growth. Largely for that reason, the slowdown in global trade, which began after the 2008 global financial crisis and intensified in the Covid-19 era, points to a sea change in globalisation.
While global exports went from 19 per cent of world GDP in 1990 to a peak of 31 per cent in 2008, they averaged just 28.7 per cent of world GDP in the 13 years that followed. Had world exports expanded on a 6.4 per cent trajectory – halfway between the 9.4 per cent pace of 1990-2008 and the post-2008 rate of 3.3 per cent – the export share of global GDP would have soared to 46 per cent by 2021, far above the actual share of 29 per cent.
China timed its WTO membership bid perfectly, just when the global trade cycle was on a major upswing. While the financial crisis took a brief toll on Chinese export momentum, the interruption was short-lived. By 2021, Chinese exports had surged to 12.7 per cent of world exports, well above the pre-2008 peak.
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China is unlikely to maintain this performance. Overall growth of global trade is slowing, and China’s slice of the trade pie is under mounting pressure.
At the same time, enduring pandemic-related supply chain disruptions are likely to take a sharp toll on China and the rest of the world. In the six months ending in April, a global supply chain pressures index constructed by researchers at the Federal Reserve Bank of New York averaged 3.6.
That was well above the 2.3 reading in the first 21 months following the February 2020 onset of pandemic-related lockdowns and sharply higher than the “zero” reading associated with the absence of supply chain disruptions.
Mounting geostrategic tensions are the wild card in deglobalisation, especially their implications for China. “Friend-shoring” in effect turns the calculus of cross-border trade into an assessment of the security benefits that come from strategic alliances with like-minded countries.
Moreover, Chinese purchases of Russian energy products provide a major source of support to the Russian economy, partially countering the impact of Western sanctions. That raises the risk of China being judged guilty by association.
The US is hardly an innocent bystander in this outbreak of geostrategic tensions. Just as Russian President Vladimir Putin has attempted to justify his unconscionable aggression in Ukraine as a defence against Nato enlargement, China’s long-standing fears of American containment play to similar anxieties within Chinese leadership circles.
Globalisation was always a catchy term in search of a theory. Trade was the glue that fostered integration of the world economy, but it was hardly the rising tide that lifted all boats. With the world beset by climate change, pandemics and a shocking new war in Europe – to say nothing of mounting inequality and related social and political tensions – the defence of globalisation is in tatters. China might well have the most to lose.