First coined by two World Bank experts in 2007, the middle-income trap phenomenon—the existence of which is disputed by some economists—describes how growth in developing countries tends to stagnate when gross national income (GNI) per capita rises above a certain level, as higher wages push up production costs. Countries can become “stuck in the middle” as they struggle to compete with low-income newcomers where labor costs are still low, and advanced high-income economies with strong innovation. Since 1960, only 15 countries have escaped the“middle-income trap.” Can China beat the odds?
The WTO is the world’s primary trading system, comprised of 164 member-economies scattered across all of the world’s five continents, and it is obviously in the interests of the world that it works effectively. But growing disputes between China and the Western economies are making the World Trade Organization increasingly dysfunctional. Could the result be a radical overhaul of the global trading system?
The rapid deterioration in relations between China and the US over the past 12 months has left many scratching their heads and wondering how we got here. Stephen S. Roach is not one of those people. A former Chief Economist of Morgan Stanley and currently Senior Fellow at Yale University’s Jackson Institute for Global Affairs, Roach has been watching the development of Chinese-US relations closely for more than three decades. For him, a tariff war between the world’s two largest economies was as predictable as it is harmful.
For many in Beijing, the trade war confirms long-held suspicions that the United States is determined to thwart China’s rise as the world’s next superpower. As a result, US demands that China abandon Made in China 2025 have also tended to be viewed by Beijing as being motivated not by concerns over fair competition, but by a desire to make sure America keeps its lead in the global innovation race. Public statements from senior figures in the Trump administration have fueled these concerns—the trade war not as an isolated incident, but part of a longer history of US attempts to undermine rival powers.
For China’s technology sector, the decision of the United States to hit Shenzhen-based telecommunications giant ZTE with a trade ban in April was an abrupt and painful wake-up call. Until then, many in China had grown accustomed to thinking of their country as a global leader in technology. After all, China’s smartphones, high-speed railways and e-commerce platforms were the envy of the world. But in the days following the ban, designed to punish ZTE for violating US sanctions on Iran and North Korea, it became clear that one of China’s most successful companies was totally dependent on American suppliers.
China’s huge current account surplus was once the symbol of its status as the “factory of the world.” But in recent years, that surplus has been shrinking. Last year, it sank to 1.3% of GDP. The half-year deficit announced in August was the first in more than 20 years. Some economists predict China could soon be running a current account deficit. If that happens, it will be a watershed moment with implications for all manner of issues, from the policies Beijing is able to pursue to the status of the RMB as a global currency and maybe even the way the US finances its debt.
For nearly 50 years, most of the world’s oil has been bought and sold with US dollars. But that may be changing, as the energy exchange center in Shanghai has begun trading a yuan-denominated oil futures contract. Six months after the contract, more 10% of the world’s oil is now traded in yuan. Why are the Shanghai contracts so popular? Will the world enter a petrol-yuan era from petrol-dollar era? How will the situation evolve against the background of trade war between the two largest economies?
The speed at which China has emerged as a major player in Southeast Asia is stunning. In 2000, total trade in goods between China and the 10 members of the Association of Southeast Asian Nations (ASEAN) was only $40 billion. By 2014, this had leaped to $480 billion, and is forecast to reach $1 trillion by 2020. Southeast Asia has become a strategic market for companies across the whole Chinese economy. Manufacturers are looking to offshore production in order to reduce labor costs, while tech companies are eyeing the region’s 633 million-strong consumer market as a new source of growth.
“Trade wars are easy to win,” says US President Donald Trump. US-UK trade historian Marc-William Palen disagrees. In this interview, Palen, author of The “Conspiracy” of Free Trade: The Anglo-American Struggle over Empire and Economic Globalisation, 1846-1896, and senior lecturer in history at the University of Exeter (UK), argues that US politicians’ pursuit of trade wars in the 19th and 20th centuries yielded mostly short-term political gains for themselves and high, long-term economic and strategic costs to their country.
China played a surprisingly prominent role in debates surrounding the UK’s 2016 referendum on leaving the EU. For leading “Leavers”, Brexit was a chance for Britain to free itself from a stifling Brussels bureaucracy and build stronger trade relations with upcoming powers like China. But those expecting a blossoming in China-UK relations after Brexit might be disappointed, says Leslie Young, Professor of Economics at CKGSB. Professor Young, who received a doctorate in mathematics from Oxford University in 1971, at the age of 20, and who is now a recognized authority in international economics, explains how Chinese business is likely to be affected by Brexit.