‘The risk of China canceling out the benefits of international trade is worrying’

The third plenary session of the Chinese Communist Party (CCP), which focused on economic development strategy, ended on July 21, honoring President Xi Jinping against a backdrop of deflation and strong protectionist tensions.

In line with the objectives of the “Made in China 2025” report published in 2015, and the 2022 CCP congress, the plenum reaffirmed the priority given to the “new model” based on “high-quality economic development;” economic policy must now rely on technological innovation, mega data (“big data”) and artificial intelligence to sustain growth.

The consequences of these objectives are significant, even worrying, for the global economic balance.

Short-term job destruction

First of all, the commitment to stimulate domestic demand in order to rebalance the structurally surplus trade balance ($823 billion in 2023, around €750 billion) is no longer on the agenda. Even more worrying is the risk of China dragging the global economy into a position where the benefits of international trade are partially or totally canceled out.

This scenario is admittedly considered highly improbable by economists, who take pains to refute it in the press in response to public concern about globalization. In fact, in the public mind, export trade combined with very low real wages is said to have been behind many factory closures in Western economies over the past few decades.

If most economists acknowledge the effect of globalization on job destruction in the short term, it is only to point out that the national product is always higher in the long term. The “law of comparative advantage” enunciated by British economist David Ricardo (1772-1823) provides that each country specializes in the production of a good, and then achieves higher productivity gains than another country that does not specialize. If each country chooses different specialties, then global wealth is greater than that produced in isolation.

Provided the exchange rate remains stable, each country enjoys additional wealth. But this argument hardly persuades the public, judging by the intensity of debates on globalization.

‘Relevant’ popular untruth

Never short of arguments, economists reply that the controversy is essentially due to the public’s “lack of economic culture.” Not all economists, however, are convinced by this explanation. Paul Samuelson (1915-2009) shared some of the public’s fears. Since his Nobel Prize acceptance speech in 1970, the question of job destruction has preoccupied him throughout his career.

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