The US stance on imports from China and the highly integrated supply chain was vociferously advocated by President Trump. It will change in tone but not markedly in substance if Joe Biden wins the presidency.
Behind the acrimony is the toll that outsourcing US jobs to China and other lower-cost countries over the past three decades has taken on many parts of America’s industrial heartland, with mass unemployment and very few new jobs to come by.
About two years ago, former GE chairman and CEO Jeffrey Immelt acknowledged that there needed to be a reversal of the outsourcing efforts by his company and many others. He admitted that the time had come for onshoring and repatriating jobs. Not even big business can afford to ignore jilted US workers in times of populism and pandemic.
The TikTok deal and the controversy surrounding it, like the ban of WeChat in the US which has run in a legal hurdle, are not just about trade or the fear that the Chinese government could gain access to the data of their US users. Nor is the US ban on Huawei solely placed of the fear of the Chinese government getting access to critical 5G infrastructure in the West.
What is at the core of all of these initiatives is the fight for supremacy in the field of 21st-century technology and innovation between the world’s two largest economies. It is the fight between the old hegemon and the challenging superpower, which is fought on the economic and political stage rather than militarily — for the moment, at least. For having the upper hand in technology and innovation does have ramifications for the defense sector.
The question is why Chinese exports are soaring amid all the controversy. According to Oxford Economics, China’s share of the global export market leapt to 18 percent in April during the height of lockdowns throughout the world. It came down to 15.9 percent thereafter. China’s trade surplus vis-a-vis the United States also rose to $32.4 billion in August, which is its highest level in almost two years.
These numbers look counterintuitive at first glance — amid the pandemic and US-China trade tensions. However, they do make sense, looking at the state of the global economy and the spread of COVID-19.
In April most of the Western world went into lockdown just as China, which had been first hit by the virus, started to recover. The Chinese government managed the pandemic well with stringent measures right at the outset, followed by relaxation for business, although not necessarily for private life. China also produced many of the products where demand was soaring — such as PPE equipment and tech gadgets. The former was vital for health care workers, with Western nations either no longer producing such equipment or having neglected to store it before the pandemic. The latter became essential to enable life and schooling while people were holed up in their homes. Most of the Chinese companies doing great business were not state-owned enterprises (SOEs) but privately owned. They were extraordinarily nimble, which helped them ramp up production where and when it was needed. This flexibility is unimaginable in Western countries where trade unions and workers’ councils play a far greater role.
Exports of other Asian countries, such as Taiwan, Korea and Japan, benefited from worries about the supply chain for technology products amid increasing US-China tensions while the virus was spreading fast.
The past few months have taught us four things:
Firstly, technology and innovation are really where it is at when picking the winners and losers among economies and companies going forward.
Secondly, the fight for technological supremacy between the world’s two largest economies has just started and, if anything, was exacerbated by the pandemic.
Thirdly, we cannot discount the position of China in the global supply chain. The past 30 years have created realities. The wheel of time cannot just be turned back.
Fourthly, expect the animosity between China and the US to persist, if not gather pace, irrespective of who is in the White House as of January.
The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.
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