Globalization is not dead, it will become ‘more Asian’ with China as a potential leader, according to Ian Goldin, Professor of Globalization and Development at the University of Oxford. Globalization is alive and well in Asia, that would not be where it is – growing at 5% a year, eliminating extreme poverty – without globalization. But globalization is becoming more fragmented, more regional, and more Asian as the U.S. wants to remove itself from it. Globalization is transforming rapidly, both in terms of where the biggest participants are – mainly in Asia – and also what it will be over time. It will comprise less manufacturing, less low value, more services, more digital and more technology. And globalization is not only about the movement across national borders of good things – vaccines, cars and everything else – but also the risks associated with it. The Covid-19 pandemic was a manifestation of globalization. The risks are growing along with the benefits, Professor Goldin argued in the Open Questions series of the South China Morning Post.
China has been the biggest beneficiary of globalization. Its opening up and growth have been extremely significant, and globalization is the reason it has been so successful in reducing poverty domestically and growing so rapidly. As it reaches higher levels of income, the composition of what it exports is changing. It is no longer a low-cost manufacturing center. Increasingly, its economy is comprised of more value-added, technologically advanced products and more services. That’s good, because it reflects the structural and demographic changes in the economy. Other countries will benefit because they will become low-cost manufacturing centers: India, Bangladesh, Vietnam, Cambodia and others. But more low-cost manufacturing and services are being done by automation. With automated services, there will be no call centers in the future. Administrative offices will be all digital. Robotic equipment is doing a lot of repetitive manufacturing tasks. So the ability of countries to benefit like China did will be slower and different. China was lucky that it was able to develop from an unskilled, low-paid workforce to a higher-skilled, better-paid one at a time when there was still a big need for low-skilled labor and repetitive work. But with automation, that will not be the case in the future.
There will still be manufacturing in China, but it will be very different compared to the past. It needs to be more value-added, more automated, more technological, with more robotics. The question of what humans will do in manufacturing compared to what machines will do, will change in big ways. Advances in artificial intelligence (AI) and robotics are accelerating that change. As automation advances, it is the prices of skilled labor and capital that become more important than the price of low-cost labor, because machines are capital. This becomes very important in determining where high-value-added manufacturing locates. If China wants to compete, it needs to make sure it has available skilled labor and cheap capital, with lots of investment. Increasingly it will be for Asian markets and the domestic market, not for export to the U.S., said Professor Goldin.
On President Trump's tariff policy, he said that what Trump is doing is unpredictable and very bad for the U.S. economy. The worst effects will be felt in the U.S. in the medium term. It will lead to inflation, a slower reduction in interest rates and slower growth. Higher prices will also be bad for poor people. It will increase the cost of imports, and poorer people pay a bigger share of their income on these imported products. So it will increase inequality in the U.S. It’s also pushing down the dollar and consumer confidence, reducing investment.
For the rest of the world, we will see the implications of this in less reliance on supply chains that are integrated with the U.S. That means there will be a diversion to other markets. Asia will become more integrated. China will stimulate demand domestically and rely more on the domestic market. Europe will look increasingly to Asia rather than to the U.S. for trade, investment and technology. The U.S. is going to become a smaller and smaller share of global supply chains, of global value-added investment, global trade and the global economy. For the rest of the world, this could lead to an acceleration of integration. China, India and other countries should reduce tariffs and stimulate trade. At least for the next four years, it means that the U.S. cannot be a reliable partner in anything. That will increase the need for diversification away from the U.S. Other countries have to reinforce their commitment to a rule-based trade system, multilateralism, net zero on climate, the World Health Organization (WTO) and stopping pandemics.
To reduce global poverty, slow climate change and reduce conflicts, pandemics and other risks, the rest of the world needs to emerge stronger as a result of this test. China and other countries – China can show leadership – should demonstrate that what the U.S. is doing is not going to change their behavior, because solving global problems is necessary for the benefit of all humanity. This is not only for the world, but for China’s future. China has learned it needs to stop pandemics. China knows it’s got to do what it can to slow climate change. China knows that it’s got to protect intellectual property, because it’s now the biggest producer of intellectual property in the world. China knows that it’s got to work with other countries to address big shared problems. It’s important that in this process, with the U.S. tariff escalation and lack of coordination and cooperation, everyone else’s commitment to address shared problems is reinforced. This will compensate to some extent for the U.S. withdrawal. Hopefully, at some point in the future, the U.S. will come back to play its part in solving our common world problems, Professor Ian Goldin said in an interview published in the South China Morning Post.
