Will China and India Lead The Next Wave of Globalization?

Written by Monish Tourangbam and Pawan Amin.
Read the original article on The Diplomat.

Image credit: Flickr / Narendra Modi

On May 14, while addressing the gathering of 29 heads of state and other high level representatives attending the Belt and Road summit, Chinese President Xi Jinping projected the Belt and Road as a “road of opening up.” He went on to stress that “opening up brings progress while isolation results in backwardness.” Whether this was a jibe at the current protectionist dispensation in the United States or not, Xi did not hold back in comparing the initiative to the Western model of development assistance. While making it clear that China does not intend to interfere in other country’s internal affairs, export its social system or development model, Xi laid out the plan for a new model of win-win cooperation. He also announced new projects in the area of emergency food aid, poverty alleviation, health care and more; areas traditionally the mainstay of development assistance provided by the United States and other western countries. While there remains an ambiguity in the shape of things to come, it is largely acknowledged that Xi’s China has come out of the era of “hide and bide” to an era marked by a “New Type of Great Power Relations,” as Beijing phrases it, when China realizes the “Strong Army Dream.”

In the United States, Donald Trump won the presidency in part on the promise of saving American workers from the onslaught of globalization. He promised to kill the Trans-Pacific Partnership (TPP) and followed-through by withdrawing the United States from the agreement.

Meanwhile, the Chinese president has been championing globalization. At this year’s World Economic Forum, President Xi said, “Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend.”

Until recently, Western leadership of the globalization era has been taken for granted. So, will the next stage of globalization be led from outside the West, by countries like China and India? Is this the beginning of the much-debated Asian century, where two Asian countries, outside the Anglo-Saxon world, redefine and reshape the future of globalization? While the United States under Trump seems to be pulling inward, at least in terms of global economic leadership, China under Xi and India under Modi, seems more intent than ever to face the brave new world.Indian Prime Minister Narendra Modi, speaking at the Raisina Dialogue this year, said, “The world needs India’s sustained rise, as much as India needs the world. Our desire to change our country has an indivisible link with the external world. It is, therefore, only natural that India’s choices at home and our international priorities form part of a seamless continuum.”

Do these speeches have any real impact on the way these countries conduct business?

For instance, Trump scrapping the TPP and reviewing multilateral trade agreements might signal a retrenchment from global economic leadership and a fillip to his “America First” sloganeering. However, the jobs that the United States has been offshoring to China are on the lower end of the value chain and mostly in assembling products which are designed and made in the United States. Returning these jobs to the United States would either mean convincing American workers to accept lower minimum wages or risk increasing the price of American products, thereby affecting their competitiveness. The real threat to employment in the United States is not China’s labor market, but increasing automation in manufacturing and other sectors. Moreover, as in the case of Apple, it has been proven that U.S. firms gain most out of offshoring low value manufacturing to China. On the other hand, onshoring high value manufacturing jobs, like Samsung’s chip plant for Apple, might provide high wages but does not contribute significantly to reducing unemployment in the market. Thus, U.S. tech and aerospace giants would be the biggest losers in a trade war with China. The question is, whether these companies could lobby successfully for a course correction.

On the other hand, China has been one of the biggest beneficiaries of globalization. With the support of China’s policy banks and sovereign wealth fund, Chinese firms have been able to outbid competition in the telecom, railways and infrastructure sectors globally. High speed railways is one example where foreign companies are finding it difficult to compete with the lucrative financial terms provided by Chinese companies. China gained expertise in this technology by opening up the sector for foreign investment, preconditioned on technology sharing. In a process which China likes to call “digestion and re-innovation,” it learnt from the technologies of different manufacturers investing in China. India wishes to do the same through the “Make in India” program promoted by Prime Minister Narendra Modi. While the initiative created a lot of interest overseas, transportation connectivity and legislative bottlenecks in land acquisition do not allow India to benefit completely from the forces of globalization.

While the Trump administration focuses on renegotiating trade agreements in order to reduce trade deficits, China has been emphasizing the jobs being created in the United States from investments made by Chinese firms. An editorial in Xinhua, China’s state run news agency, blamed Washington for job losses in China. Since Xi’s Davos speech, China has been taking measures to promote itself as the global leader of globalization. Soon after the speech, China’s State Council declared that it will open its economy for investments in banking, securities, investment management, futures, insurance, credit ratings and accounting sectors.

The banking and insurance sector in India can hope to benefit from these reforms if and when they do take place. However, the present threat to globalization does not come from China’s ability to attract jobs from United States. It comes from the possibility of an eventual trade war between Beijing and Washington. The Trump administration recently decided to drop the category of “re-exports” from its overall calculation of U.S. exports. This is important because the removal of re-exports will inflate the U.S. trade deficit, thereby providing the administration additional leverage to renegotiate trade deals. In light of the impending danger, the Associated Chamber of Commerce and Industry of India suggested that India build bridges with the Trump administration in order to avoid being caught in the crossfire. Soon after, China’s Global Times published an article asking India to not overestimate its economic ties with the United States, but rather focus on boosting domestic manufacturing capacity to become an integral part of the Asian supply chain.

India should indeed be wary of choosing sides between China and the United States. India’s own economic and security interests are intertwined with that of both the countries. While the A recent bill in the U.S. Congress to increase the minimum salary of H1-B visa holders hurts India’s IT sector by making it less lucrative to hire Indian workers, a healthy relationship with the United States remains of strategic significance to India. The importance is further amplified by the increasing economic influence that China stands to gain in Pakistan on successful completion of the China Pakistan Economic Corridor (CPEC). More importantly, it is the economic influence that China will gain across Eurasia as the One Belt One Road (OBOR) project gets underway (of which CPEC is a part), that requires India to prioritize its own economic interest and play its cards prudently.

Monish Tourangbam is Assistant Professor at the Department of Geopolitics and International Relations, Manipal University based in Karnataka, India

Pawan Amin is a Research Scholar at the Centre for East Asian Studies, School of International Studies, Jawaharlal Nehru University, New Delhi

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