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US-China relations
OpinionComment
Andy Xie
Andy Xie

The View | With US-China tensions rising over Taiwan, the global economy must brace for geopolitics trumping economics

  • The Taiwan crisis has deepened the divergence between China and the US-led West
  • While markets might believe that trade is the new mutually assured destruction, history tells another story

Reading Time:3 minutes
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A worker produces stuffed toys for export at a factory in Lianyungang, in China’s eastern Jiangsu province, on July 7. Photo: AFP
Andy Xie
The global economy has become more dependent on China since the pandemic began, while the geopolitical climate has become more confrontational as tensions rise between the US-led West and China. The divergence seems to be deepening over the question of Taiwan.
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That raises the risk of geopolitics suddenly overwhelming economics. This is likely to be the biggest risk to the global economy in the coming years.

Then US president Donald Trump declared a trade war on China in July 2018, and reshoring became a talking point around the world. The perception was that China’s export machine would fall apart. While that narrative still remains popular in the international media, the facts on the ground have moved in the opposite direction.

China’s exports of goods and services rose from US$2.26 trillion in 2017 to US$3.36 trillion in 2021, while the US’ exports inched up from US$2.33 trillion to US$2.53 trillion in the same period. In the first half of 2022, China’s exports of goods rose 13 per cent, despite the high base of comparison from last year.

Instead of reshoring, “friend-shoring” is the new buzzword among Western politicians. It essentially means shifting production to friendly countries. This begs the question of why it hasn’t happened yet. What has changed in the past few years to make friend-shoring more viable now? “Friend-shoring” is a talking point that seems destined to be forgotten.
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The hard truth is that most factories generate little profit, create jobs that are demanding but not well-paying, and require a capable and supportive government. After Trump said he would bring manufacturing jobs back to the US, American comedian Dave Chappelle joked, “For what …? So iPhones can be $9,000? … I wanna wear Nikes, I don’t wanna make them … Stop trying to give us Chinese jobs.”

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