The COVID New (Ab)Normal: China’s Role in Global Trade
President of the Center for China and Globalization, Dr. Wang Huiyao
ASPI Vice President Wendy Cutler interviewed Center for China and Globalization (CCG) President Dr. Wang Huiyao on the impact of COVID on global trade, U.S.-China tensions, trends in regional trade integration such as the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and Free Trade Agreement Asia Pacific (FTAAP), and the prospects for meaningful World Trade Organization (WTO) reform.
Q. COVID and its associated economic downturn will have profound implications on international trade for years to come, including with respect to trade flows, supply chains, and trade agreements. As you look ahead, what do you think will be the most significant impacts? Do you think COVID and the global recession will inevitably lead to more protectionism in the coming years, or is there an optimistic scenario on the trade front?
COVID-19 has had an enormous impact on the world economy and also on global trade, global value chains, and international trade agreements. From what I can see, trade is the most important mechanism for the world to combat COVID-19, and to lift countries out of this crisis. We have to maintain open trade and smooth global value chains. Since World War II, or even before that, global trade has always helped countries get out of crises through postwar reconstruction, postwar exchanges among countries, and postwar trade for the development of the world. I think maintaining open trade is vital.
I also recognize the downsides of COVID-19, such as the rise in protectionism. Many are becoming increasingly protectionist and more nationalistic, populism is on the rise, so there is growing pressure on politicians to be more protectionist. All of which, goes against the purpose of fighting COVID-19 and improving and developing the global economy.
The World Bank recently released a report called Global Economic Prospective, indicating that the world economic output in 2020 will go down by almost 5.2 percent, and developing economies’ economic growth will go down by 7 percent. Meanwhile, China will stay in positive territory with up to date forecasts indicating that it may achieve 2 percent growth. I believe that we need to keep the trade channels open. We need China and the world to work together to sustain trade development.
Q. How much adjustment and disruption to supply chains are we likely to see in the coming years? What will be the implications for China if supply chains were to shift to other parts of the world?
I think China already has probably the most comprehensive supply chains. China has become the manufacturing center of the world, and now it is also the supply chain center of the world. For example, China has the most advanced high-speed railway network in the world that was built in the last two decades. Traveling from Beijing to Shanghai takes only four hours and from Beijing to Guangzhou takes only six hours. The train would have taken three or four days in the past, so you can see how far China has come along. China now has built the most advanced 5G network in the world. According to the Ministry of Industry and Information Technology, China built about 10,000 5G stations a week and already has 4.6 million 4G stations. So you can see China has been the most advanced in the telecom sector as well.
On supply chains, China accounts for seven out of the ten largest container ports in the world. I can see that China will continue to supply goods around the world, and it will enhance its supply chains. On top of that, China has 170 million talents of all kinds, college-educated, and other highly skilled persons. China graduates about 9 million people from college every year and has such an abundant talent supply. So even if there is a desire to move supply chains to other countries, it is not so easy to have so many upstream and downstream advantages China already provides. Therefore, I expect that China probably will keep its leading position in the global supply chain for many years to come given that China is already the largest trading nation for 130 countries.
So I expect that we will still see China keeping its strong position as the global supply chain center because China is a low-cost supplier, has abundant talent supply, the most cost-effective production methods, and high productivity. With the synergy of all these elements working together, China will still lead the world for many years to come.
Q. At the start of the pandemic, we saw several protectionist measures implemented with regards to medical equipment, PPE, pharmaceuticals, and even other key goods such as food. How can the global trade community ensure that the next pandemic or similar emergency is met with more cooperation and less protectionism?
During the beginning of the pandemic, we saw some protectionist measures on medical equipment, pharmaceuticals, personal protective equipment (PPE), and there was a shortage of food. International organizations predict the COVID-19 will plunge 80-130 million people back into poverty. So this is an enormous challenge for all countries. I think that international organizations, particularly the World Trade Organization (WTO), and leading trading nations should ensure, support, and pass new regulations to facilitate quick delivery of equipment, pharmaceutical or medical supplies, and PPE. Perhaps we can implement zero tariffs or even provide preferential treatment, at least on lifesaving equipment and supplies. These supplies should have the lowest tariffs possible for humanitarian reasons. By agreeing to do so, we can cut off this current trend of protectionism to save human lives during this pandemic crisis.
Q. What are the prospects for full implementation of the phase one trade agreement and successful conclusion of a phase two trade deal between the United States and China? Looking forward, how do you view bilateral vs. plurilateral/multilateral negotiations in addressing concerns with non-market economies?
China’s high-ranking Chinese politician and diplomat Yang Jiechi and U.S. Secretary of State Mike Pompeo recently met in Hawaii, and they reiterated the top leaders of both countries’ commitment to the phase one deal, so I think that is a good sign. Chinese Premier Li Keqiang at the National People's Congress introduced a working report mentioning that the joint efforts from China and the U.S. should be continued in safeguarding and implementing the phase one deal. Even though China has suffered enormously from COVID-19, China has never stopped buying U.S. goods. China recently purchased over 23 billion dollars’ worth of U.S. agricultural products, corresponding to 71 percent of its target under the phase one deal set. To date, 50 of the 57 technical commitments have been implemented under the phase one agreement. China substantially did a remarkable move in that direction, and I hope that when the situation improves, the phase one deal can still be carried out smoothly.
What I would like to see is the U.S. and China working together, and maybe even reach phase two and phase three agreements. Or perhaps, we could think about both joining the CPTPP and even involve the European Union (EU) in the talks, as the EU recently mentioned that they would like to play some mediation or serve as a new platform for the trilateral talks on those trade issues. When the new WTO Director-General comes into office, we should support the global trading platform at the multilateral level where we should focus our efforts.
I think that we should take a developmental view to look at the elements of WTO reform, including concerns of non-market economies and so forth. We should then work together to solve these issues through bilateral and plurilateral negotiations and discussions, as well as through multilateral platforms. We need to take a flexible view because some of the things that we used to think that are very bad for China are actually turning out to be positive during this fight against COVID-19.
Beyond trade, the U.S. and China have common interests since our relationship is highly intertwined. We have over 1 million Chinese students in the U.S. generating another 20-30 billion US dollars. Before the pandemic, 3 million Chinese tourists were visiting the United States, generating another 40-50 billion US dollars. We also have trademark or IPR royalty payments, and the U.S. is always in surplus in terms of trade in services. So we hope that we will continue our collaboration. We need more leadership from both countries to set good examples for the world, and think about, for the sake of mankind, how to find solutions to common challenges, like climate change and most urgently, the COVID-19 pandemic. I believe that think tanks can offer some help. The Asia Society Policy Institute is doing great things. The Center for China and Globalization is also trying to do its part. We hope that we can contribute to a new narrative for the future to come.
Dr. Wang Huiyao is President of the Center for China and Globalization.