For all the discussion of a parting of the ways between China and the US, there are many aspects of their tetchy relationship that continue to link the two superpowers. Both are huge markets. The fortunes of many US companies have been driven by China over the years. The US currently enjoys a US$36 billion+1 services surplus with China, with US financial companies continuing to knock on China’s door.
The Chinese economy has been staging a robust post-pandemic recovery amidst an ocean of global gloom, helping to enliven the prospects of its regional neighbours. Many US corporations will not buy the idea of economic decoupling in what remains a buoyant market. Just how far relations deteriorate will be tempered by the economic advantage that trade between the two still brings. With Ex-President Trump ramping up measures against Chinese companies in his last few months in office, there is hope that President Biden will adopt a more gentle approach, although that remains to be seen. Globalisation may be changing, but it is not dead.
The benefits of trade based on comparative advantage remain intact for both producers and customers. In many industries, the developing world has cultivated highly efficient and specialised clusters in manufacturing and service ecosystems, whether it is smartphone manufacturing in China, or footwear production in Vietnam. It is exceptionally difficult and inefficient to replicate this in the developed world. China remains a vital cog in world manufacturing and is a key driver of demand for products of many leading global brands, and this will continue to shape world trade for years to come.
Tom Miedema, investment manager, Walter Scott.
1 Office of the United States Trade Representative. 2019 figures.