Why US will fail to scuttle China’s economic integration with the rest of Asia

In the past, America’s push for globalisation has benefited the region. Now less dominant in the world economy, the US hopes to reverse such integration to undermine China, but it won’t succeed

Winston Mok

Published: 9:15am, 8 Jun 2022

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It is fitting that US President Joe Biden launched the Indo-Pacific Economic Framework (IPEF) – perhaps heralding a turn away from globalisation – in Tokyo. After all, post-war globalisation began in earnest in Japan – starting in the 1950s and blossoming in the 1960s – against the backdrop of the Cold War and in the aftermath of the Korean war.

Japan’s successful export economy inspired the Four Asian Dragons (also known as the Four Asian Tigers), which were led by authoritarian governments except for Hong Kong, which was ruled by a London-appointed governor. These two initial phases of East Asian globalisation created global companies such as Sony, Samsung, Toyota and Hyundai – made possible by access to the US and European markets.

With the rapprochement between the US and China in the late 1970s, globalisation in East Asia began its third phase, during which China became “the world’s factory”.

Just like its predecessors Japan and South Korea, China has been transitioning from making labour-intensive goods to technologically sophisticated products. With China’s technological advances and international expansion (such as through its Belt and Road Initiative), East Asian globalisation entered its fourth phase.

China became the leading manufacturing nation in 2011 and the leading trading nation in 2013. And, by 2020, China had as many new patents granted per year as the US and Japan combined. Just like Japan in the 1980s, China has emerged as a threat to America’s economic dominance.

After the US turned its back on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the IPEF may be seen as its feeble attempt to undermine the Regional Comprehensive Economic Partnership (RCEP). Unlike its decisive and constructive roles in the earlier phases of East Asian globalisation, however, it will be much harder for the US to orchestrate deglobalisation in Asia for several reasons.

First, the US acted in alignment with market forces in the earlier phases. Now, it is pushing against the market current. Having prevailed in the Cold War, capitalist America should know well the challenges of fighting against market logic.

Second, the US is a far less dominant economic force today, representing about a quarter of the world’s economy, versus its 40 per cent share in 1960. Meanwhile, China is the leading trading partner for most Asian countries. Southeast Asian nations trade with China at 2.5 times their level with the US.

With successive stages of Asian globalisation, the world’s technological centre of gravity has shifted towards Northeast Asia. Among the top 10 Patent Cooperation Treaty applicants in 2021, eight were Chinese, Japanese or South Korean companies, while Qualcomm was the only US firm. Sweden’s Ericsson rounds out the top 10.

The third reason the US has its work cut out is that China can offer more than deep pockets in Asia’s economic development. From high-speed rail to 5G and even renewable energy, China is a world leader – often far ahead of the US.

A worker cuts nets at a company in Lizhuang township in Huimin, in east China’s Shandong province, on May 21. Huimin has more than 700 enterprises producing over 300 sorts of net and rope products, which are widely used in construction, sports and other industries and exported to more than 70 countries and regions. Photo: Xinhua

Furthermore, in the midst of rising inflation outpacing wage growth, the US needs to alleviate rather than accentuate consumer pain. Denying American consumers the benefits of Chinese imports, or inflating prices with tariffs, just aggravates their miseries.

Besides, while the US aims to contain China’s rise, the unintended consequence of its efforts may be the opposite. On a purchasing power parity basis, China’s economy is already about 20 per cent larger than the US’. In a deglobalised world where US consumers have to make do with lower-quality, higher-priced goods while Chinese consumers have access to high-quality affordable goods, China will only widen its lead over the US in the real economy.

Finally, like Singapore, smart countries can dance with the giants. Asian countries may politely play along with IPEF talk shops, to humour the US, while working with the greater substance of the RCEP and the Belt and Road Initiative.

Just as Cold War considerations were key to US support in the earlier phases of East Asian globalisation, a new US-China cold war – a great power rivalry disguised as an ideological contest – is motivating Washington to promote deglobalisation.

Asean’s interest in Biden’s IPEF a vote for better ‘balance of power’ in region

But globalisation has become an unstoppable economic force, even for the most powerful country.

Just as China’s economic opening up led to a consolidation of manufacturing into China from many East Asian economies, so globalisation’s next phase will see a greater diffusion of economic activities to many Asian countries.

Shaped by workforce shortages and rising labour costs, high-end manufacturing is being automated in China while labour-intensive operations are moving to Southeast Asia, often with Chinese investments. Anti-globalisation moves against China will paradoxically force it to become more globalised.

China is pivotal to Asian prosperity, and the region’s nations would welcome US-China competition – as long as it leads to greater opportunities for them. But deglobalisation will only make people worse off, not only in the US and China but more importantly in all the industrialising countries in Southeast and South Asia.

Their prosperity hinges on trade and investment with both China and the US, not one or the other. The US’ deglobalisation drive would end up suppressing not just China, but all of Asia.

Lastly, whoever came up with the full name of the IPEF – the Indo-Pacific Economic Framework for Prosperity – may have limited knowledge of Asian history: the last time “prosperity” was used was in such a way was by Imperial Japan for its Greater East Asia Co-Prosperity Sphere.

After living through Western colonialism and Japanese occupation, many Asian countries that gained independence after World War II are clear-eyed about how to advance their national self-interest in an inevitably multipolar world.

Winston Mok, a private investor, was previously a private equity investor