Why is participation in the international economic cycle not a “zero-sum game”?
According to foreign media reports, the US government is recently considering cutting all ties between US suppliers and China’s Huawei, banning US suppliers, including Intel and Qualcomm, from supplying any products to Huawei. This act of encouraging the “building of walls and barriers” and “decoupling and breaking ties” has once again caused concern in the international community.
In recent years, the global economy has been hovering in the doldrums, and there has been a surge of anti-globalisation thinking. In his new book China’s Economic Breakthrough, Dongjing Wang, former Vice-President of the Party School of the Central Committee of the Communist Party of China (CPC), points out that trade controls in Western countries are intensifying, with some of them specifically targeting the high-tech sector to “strangle” other countries. Why is this phenomenon occurring in today’s globalised industrial division of labour? How do we view the game of nations in the international economic cycle?
Dongjing Wang, an economist, has served as Director of the Economics Department, Director of the Teaching Department, Director of Education and Vice President of the Central Party School. He has long served as the main instructor of the provincial and ministerial cadres’ classes at the Central Party School and has been well received by students. He has written a series of books entitled Talking with Officials, which creates strong ripples from leading cadres and business managers.
Guests visit the exhibition area of domestic chips at the Jinyang Lake - Digital Economy Development Summit. Credit: Junjie Wu
In your new book, you mention that trade controls in Western countries are increasing, with some of them specifically targeting high-tech areas to contain other countries. Why is this phenomenon occurring in this era of globalisation?
In my view, the most immediate cause is the international division of labour. Adam Smith’s The Wealth of Nations pointed out that the division of labour increases the efficiency of production. This led to the critical conclusion that a country’s participation in the international division of labour on the basis of its “absolute advantage” could enhance human welfare. Later, David Ricardo expanded on this by stating that even if a country does not have an absolute advantage, the division of labour according to its respective comparative advantages can be a win-win situation for all. Smith’s and Ricardo’s theories of division of labour are undoubtedly correct, but they share a common premise, namely freedom of trade. Therefore, under the conditions of the international division of labour, once trade is restricted, there is a risk of being “restrained”.
The fourth session of the Integrated Circuit Zone at the Fair saw the presence of global “chip giants” such as Qualcomm, AMD, ASML and TI. The picture shows Texas Instruments’ ADAS technology on display. Credit: Hengwei Zhang
Nowadays, the division of labour in industry has become globalised and the phenomenon of “restraining” is related to the global supply and demand of products. In the international market, there is a surplus of certain goods and a shortage of other goods. If a country has demand for goods that are in surplus, it will naturally not be constrained, but if it has demand for goods that are in short supply, it will be easily “restricted”.
The international division of labour is a double-edged sword. While participation in the international division of labour can be a win-win situation, if a product is in short supply on the international market and there is an immediate domestic demand for it, you cannot give up the production of such products. Therefore, if a country does not produce goods that are in short supply on the international market, it will sooner or later face restrictions. Since the crisis in Ukraine, Europe has been choked by a lack of energy autonomy, which has led to a worsening energy crisis.
The Nord Stream-2 gas pipeline project was urgently halted by Germany before it became operational due to the severe sanctions imposed by the West in response to Russia's military action against Ukraine. Credit: Nord Stream 2
At present, some Western countries are advocating “decoupling”. What impact will this have on the international division of labour and trade cycle? How do you see the game of nations in the international economic cycle?
Adam Smith’s The Wealth of Nations begins with the division of labour, moving from the division of labour within firms to the division of industrial and then to the international division of labour. The division of labour is explored in such detail because, in his view, it is the source of the growth of national wealth. Or rather, it is only through the division of labour and free exchange that a nation can become wealthy.
In the past, developing countries saw themselves as being exploited by trading with developed countries. In contrast, today, developed countries see themselves as “losing” and developing countries as “gaining” by trading with them. If one understands Ricardo’s theory of the division of labour, one can see that both of these statements are wrong.
To sum up from the above, firstly, in order to become rich, a country should participate in the international division of labour according to its respective comparative cost advantages; secondly, the cost is the highest price to pay for giving up choices, and countries should weigh their comparative advantages from the perspective of opportunity cost; thirdly, free trade is a prerequisite for the international division of labour, and countries participating in the international division of labour should jointly resist trade protectionism and maintain freedom of trade.
Container trucks leaving the Fuzhou Area of Fujian Free Trade Zone. Credit: Bin Zhang
With the development of globalization, the world will not revert to a state of mutual closure and division, and no country can close its doors for construction. At present, some Western countries are promoting "decoupling", resulting in unfettered trade between countries, which will profoundly affect the international division of labour and the smooth flow of the international trade cycle.
The United States already stands at the top of the global industrial chain and is the biggest beneficiary of the international division of labour, why has there been a tendency towards trade protectionism in recent years?
There was a widespread view in American society that there was a trade imbalance between the US and China, with the US running a chronic deficit and China running a surplus, and that punitive tariffs on Chinese goods were imposed in the hope of reducing the US trade deficit with China. In reality, the US trade deficit indicates that the US buys the goods it needs from China, while China buys less of the goods it needs from the US and simply trades them back for dollars. China’s trade surplus does not mean that China is “taking advantage”, and the US trade deficit does not mean that the US is “losing out”.
Further, since the US dollar has been the central international currency since World War II, the US can purchase goods globally as long as it prints dollars, while China must first export goods in exchange for dollars in order to import US goods. This makes it inevitable that the US has a trade deficit. In fact, the United States today has a deficit not only with China but also with more than 100 countries and regions around the world.
Pictures of the CNY with the US dollar and other currencies. Credit: Chenglin Song
A few days ago, German Chancellor Scholz wrote in the US magazine Foreign Affairs that the rise of China is not a reason to isolate it or an excuse to limit cooperation with China. How do you see counter-globalisation?
Not only do the East and West have different attitudes towards counter-globalisation, but the West is also all in one union. Ultimately, different countries have different interests, and their interests determine their attitudes. The US is inclined to decouple because it fears that the rise of China will shake its hegemonic position. Knowing that decoupling will cost a heavy price, it is still bent on doing so, with the aim of blocking the Chinese economy and “restraining” China.
Scholz is clearly against decoupling from China, which is wise. China is by far Germany’s most important trading partner, ahead of the Netherlands and the US. According to German economists, Germany would lose its huge Chinese market if it were to decouple from China and would suffer six times the losses that the UK would suffer leaving the EU.
Scholz at a press conference in Berlin. Credit: Dawei Peng
How should China break through barriers in the face of the current undercurrents of counter-globalisation? How can they avoid being “strangled”?
When a country has a demand for goods that are in short supply, it is easy to be “strangled”. If you do not pay attention to the independent research and development of key core technologies and rely heavily on imports, it is inevitable that you will be “restrained”.
How to avoid being “strangled”? Firstly, products that are “restrained” are often in short supply in the international market, so while actively participating in the international division of labour, we must not abandon the production of such products. In order to avoid being constrained by others, we must insist on scientific and technological self-reliance and self-improvement. Key core technologies include basic technologies, exclusive technologies and disruptive technologies, all three of which are equally important. In particular, it is necessary to over-deploy and focus on breakthroughs in the area of disruptive technologies. To take advantage of China’s new system of state ownership, we must be one step ahead in disruptive technology in order to reverse the situation of being “strangled”.
Fully automated robots are running at high speed at Geely Automobile’s Changxing base in Huzhou, Zhejiang province, rushing to make the latest model. Credit: Yunfeng Tan
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