Xi Jinping is the first Chinese president to speak at the World Economic Forum Annual Meeting in Davos, Switzerland. The visit attracted even greater international media attention than usual for a Chinese leader. As the Financial Times chief foreign affairs columnist Gideon Rachman put it, "The big star of this year's forum is certain to be Xi Jinping."
The reason for this is well understood. China's unequivocal support for open economies and globalization now clearly contrasts with the protectionism embraced by newly inaugurated U.S. President Donald Trump and, on a smaller scale, the UK's Brexit referendum.
In terms of a declared position on globalization, a definitive turning point has already been made. Every U.S. president since World War II (WWII) from Harry Truman to Barack Obama had at least verbally committed to free trade and globalization. Trump explicitly broke with this historical position, threatening to impose a 35-percent tariff on Mexico and a 45-percent tariff on China. He also pledged to impose a U.S. "border tax" and to renegotiate the North American Free Trade Agreement (NAFTA) as well as pressurized U.S. companies not to invest in Mexico (despite it being a NAFTA member). In parallel, while the Trans-Pacific Partnership (TPP) was not a move for freer trade—being in reality an anti-China bloc—its unilateral abandonment by Trump nevertheless made the United States appear as an unreliable negotiating partner.
Whatever happens in the future, there can never again be complete certainty in U.S. commitment to globalization. This fundamental pillar on which the post-WWII global order was built is no longer solid. It is widely understood that of the world's two largest economies, only China remains unequivocally committed to globalization.
This has a direct and potent effect on other countries as well as on China—hence the widespread international interest in Xi's Davos visit. Other countries understand, both factually and theoretically, the decisive importance of international trade and globalization.
Factually, numerous studies demonstrate the positive correlation between an economy's global openness and its development speed. Growing internationalization across many nations was a decisive trend during the long period of relative global economic stability and growth after WWII—a sharp contrast to the economic fragmentation of 1929-39, marked by the infamous U.S. Smoot-Hawley protectionist tariff, which led to the greatest economic crisis in modern history.
A clear theoretical understanding of the advantages of economic openness has existed for over 200 years. The first sentence of the founding work of modern economics, Adam Smith's The Wealth of Nations, says the greatest improvement in the productive powers of labor seems to have derived from the division of labor. But division of labor in a modern economy has reached a point where it is necessarily international in scale.
International supply chains, which alone ensure the cost efficiency of modern production, flow from the reality that different countries have different advantages in different areas of production. Attempts to create self-contained national economies cause a reduction in efficiency, therefore every import substitution or equivalent strategy attempt will fail.
The overwhelming majority of countries, including traditionally firm U.S. allies such as Germany and Australia, have expressed opposition to Trump's protectionist policies. When German Chancellor Angela Merkel recently said, "We see protectionist tendencies," she was naturally discreet enough not to mention the United States, yet her intended meaning was evident. A large majority of other nations will strongly agree, either publicly or silently, with Xi's clear support of open economies and globalization at Davos.
Maintaining an internationally open economy is vital not only for governments, but also for the world's population. Globalization has brought immense benefits to the majority of the world's people.
Certainly the political crisis in the Anglo-Saxon countries, which has produced support for protectionist dead ends, was created by the failure to improve general living standards. U.S. median household incomes are lower than 16 years ago and inequality has soared. In the United Kingdom, real incomes over the last eight years experienced their most prolonged decline for a century. However, this is not inherent of globalization, as demonstrated by the dramatic improvements achieved by most countries, but is a consequence of the neo-liberal path taken by Ronald Reagan and Margaret Thatcher. It is for this reason that protectionist sentiment has manifested most strongly in the Anglo-Saxon economies.
China's support of globalization, symbolized by Xi's Davos visit, corresponds to national self-interest. But it also corresponds to the self-interest of other countries and peoples. Mutual self-interest is the firmest of all foundations for cooperation. It is for this reason that Xi's Davos trip has garnered such intense international interest.
This is an edited excerpt of an article titled The world Will Be Listening to Xi Jinping at Davos published on China.org.cn
Copyedited by Dominic James Madar
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