Together in the same boat

Despite the many rounds of negotiations on tariffs since the outbreak of the Sino-US trade dispute nearly two years ago, the talks are focusing less and less on tariffs as the disputes enter a new phase. Whether the tariffs come down or not, uncertainties will remain. Similarly, each country has already started and will stay committed to adjusting their respective trade structures, regardless of the outcome on tariffs.

The core issue in the ongoing trade conflict, which has become increasingly clear, has to do with the direction in which the world order is headed. The existing US-dominated global order is already being disrupted by China's economic growth, regardless of China's wish or will－or the lack thereof－to change it.

Global economic governance is in deep trouble, and the dollar-dominated monetary system and US-led global financial governance are ill equipped to provide a solution. Asking China to run its economy according to the global system defined by the US will go nowhere. China, being the enormous economy that it is, has to make its own decisions. In response to the trade conflict and to contribute to the reform of the global economic governance architecture, China must consider "third-country effects" as it takes decisive steps to open up its domestic market.

A "third country" refers to any country other than China and the US. With the US accounting for 24 percent and China 16 percent of the world's GDP, the two largest economies make up 40 percent of the global pie, while all other economies make up the remaining 60 percent. In the high-tech market, US exports of high-tech goods have between 32 to 34 percent of global share, which is a considerable share but still not the decisive component. This is a significant change from the post-war days: back then, output in the US alone was 53 percent of the global GDP.

The biggest global impact of the bilateral trade disputes has been uncertainty in US economic and trade policies. China should therefore do the opposite and maintain high predictability in its policies, and continue to maintain or even accelerate its opening up to the world no matter what happens. In this regard, it is especially important to maintain or expand access to the Chinese market for countries in the European Union, and for Japan, Canada, Australia and other non-US developed economies. Looking at the issue rationally, there is no conflict between the fundamental interests of China and those of these third party countries. On the other hand, China already has a solid basis for opening up further to these economies.

First of all, the US has been coming down hard on the Chinese telecommunications company Huawei in an attempt to maintain its global monopoly in the high-tech sector, but Huawei is hardly alone. German, French, British and Japanese companies have long suffered the same fate and the US continues to tighten its grip on multinational corporations over the years. European companies have no choice but to comply with US demands given the latter's enormous power in the global technology and financial markets. Huawei, for its part, represents the hope of tech companies to break free from the long arm of US jurisdiction.

French scholar Ali Laïdi argues in his book Les Secrets de la Guerre Économique on US long-arm jurisdiction that the US is in fact playing world police by effectively regulating global companies to protect US economic interests with the ultimate goal of turning other countries into its vassal states. Laïdi argues that the US does this by leveraging its enormous domestic market and its monopoly position in the global finance, information and technology sectors to wield its dominant power in global intelligence, military affairs and law enforcement. Other countries, including US allies, have been pushing back the long arm of US law, but to little avail.

China's enormous market gives high-tech companies that operate outside of the US a glimmer of hope to escape the long arm of US jurisdiction. To some extent, these companies and countries can band together to break free and build a fairer global order. They can come together as they surely have some interests in common.

Second, the US' excessive efforts to protect the intellectual property (IP) of US companies in general and US biopharmaceutical manufacturers in particular is a clear indication of its desire for IP monopoly. There is nothing wrong with IP protection, but monopolizing IP or innovations would be going a step too far. Hence, both China and the rest of the world have a stake in standing up to the US in this regard.

Meanwhile, China should never engage in adversarial multilateralism. No country should coerce another into antagonizing the same rival. Even if the US engages in such behavior, China should not demand other countries to choose sides. China has the same interests and demands and a basis for collaboration when it comes to the global governance of multinationals and shaping the global economic and trade order. In this sense, it is the third-party countries that will largely determine the outcome of the trade frictions.

The author is Unigroup Chair Professor of Finance at PBC School of Finance, Tsinghua University.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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