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Globalization in a changing world
Published 05 October 2022
Is the conventional wisdom that greater trade leads to peace among nations still warranted? Can a digital yuan give China a way to avoid US dollar transactions? Can Vietnam follow in the footsteps of South Korea and Taiwan to become an innovative economy? Check out our new reading list to catch up with the latest articles and reports on global trade.
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Future of Globalization | Lessening dollar dependency | Vietnam gains from decoupling | European investments in China are changing | Inflation Reduction Act and WTO rules | US-China trade deteriorates | Missing trade tools | More research from Hinrich Foundation
Future of Globalization
For centuries, economists have theorized that greater economic integration leads to peace, but is that belief warranted? John Plender lays out the intellectual underpinnings of the idea that greater trade and economic interaction leads to peace between nations, and explains how that conventional wisdom survived through two world wars, in the Financial times. Meanwhile, Richard Baldwin in a series of blog posts (Part 1, Part 2, Part 3, Part 4) analyzes whether globalization has in fact peaked, and highlights the role of trade in services.
- Why trade couldn’t buy peace – John Plender, Financial Times, 23 September 2022
Russia’s war and tensions with China are unraveling the notion that international trade leads to peace among nations.
- Part 1: The peak globalisation myth, Part 2: Why the goods trade ratio declined, Part 3: How global supply chains are unwinding, and Part 4: Services trade did not peak – Richard Baldwin, VoxEU/CEPR, 31 August to 3 September 2022
Has globalization peaked? For trade in goods, it depends, but for trade in services the answer is no.
Lessening dollar dependency
Fears over US sanctions tied to the dollar’s dominance in financial transactions are driving more countries to develop alternative payment systems and greater reliance on local currencies. The Economist looks at how a digital yuan can give China a way to avoid US dollar transactions, and in Foreign Policy, Zongyuan Zoe Liu highlights how China is working through the Shanghai Cooperation Organization to advance transactions in local currencies.
- The digital yuan offers China a way to dodge the dollar – The Economist, 10 September 2022
The E-CNY could prove useful for avoiding dollar-denominated transactions, even with China’s strict capital controls.
- China Is Quietly Trying to Dethrone the Dollar – Zongyuan Zoe Liu, Foreign Policy, 21 September 2022
The Shanghai Cooperation Organization agrees to expand trade in local currencies.
Vietnam gains from decoupling
While Vietnam is gaining from the push to de-couple from China, it is unclear whether Vietnam will become an innovative economy in the style of South Korea or Taiwan, as reported by Nikkei Asia.
- Vietnam emerges as Asia's growth leader as China slows – Francesca Regaldo, Nikkei Asia, 27 September 2022
The World Bank finds that Vietnam is leading growth in the Asia-Pacific while China’s economy is slowing down significantly.
- Vietnam's battle to climb the global value chain – Lien Hoang, Nikkei Asia, 21 September 2022
Can Vietnam follow in the footsteps of South Korea and Taiwan to become an innovative economy?
European investments in China are changing
European investment in China is becoming highly concentrated, according to a recent analysis from the Rhodium Group. Policy unpredictability in China is weakening investor confidence, per a recent paper from the EU Chamber of Commerce in China, reports Bloomberg. A high-level Chinese official makes a visit in an effort to signal support for foreign investment, per Nikkei Asia.
- The Chosen Few: A Fresh Look at European FDI in China – Agatha Kratz, Noah Barkin, and Lauren Dudley, Rhodium Group, 14 September 2022
European investment in China is becoming highly concentrated among a few sectors and companies.
- China Loses Allure as European Firms Rethink Investments – Bloomberg News, 21 September 2022
Less predictable Chinese policies are weakening EU investor confidence in China.
- European Chamber Advocates for Beijing’s Return to Reform Agenda – European Union Chamber of Commerce in China, 21 September 2022
- China signals support for foreign investment after virus curb fury – Pak Yiu, Nikkei Asia, 22 September 2022
Vice Premier Han Zheng visits a BASF factory to signal support for foreign investment.
Inflation Reduction Act and WTO rules
Recent US legislation designed to boost electric vehicle production in North America, is angering South Korea at a time when the US is seeking greater cooperation with this important ally, explains Ellen Kim from the Center for Strategic and International Studies, while China is threatening to take action, per Bloomberg.
- Inflation Reduction Act Comes into Focus at UNGA – Ellen Kim, Center for Strategic and International Studies, 22 September 2022
Electric vehicle incentives in the US Inflation Reduction Act are causing tensions with South Korea
- China Threatens Action Against ‘Discriminatory’ US EV Tax Breaks – Bloomberg News, 22 September 2022
China claims that new US electric vehicle production incentives are discriminatory.
US-China trade deteriorates
Recent data shows a significant decline in US exports to China, because of Russia’s war, describes Chad Bown from the Peterson Institute for International Economics. Writing in Foreign Policy, Michael Hirsh argues that no one is winning the US-China trade war.
- First trade war, now Russia's real war. Why US exports to China continue to suffer – Chad P. Bown, Peterson Institute for International Economics, 12 September 2022
US energy and manufacturing exports to China are down significantly, exacerbated by geopolitical tensions.
- Who’s Winning the U.S.-China Trade War? No One – Michael Hirsh, Foreign Policy, 21 September 2022
As the US and China settle into a long-term trade war, a long-term strategy has yet to appear.
Missing trade tools
US domestic politics have led the US away from trade liberalizing policies and the use of traditional trade tools. Matthew Schaefer of the Yeutter Institute asks whether geopolitics will drive the US back to an offensive trade agenda.
- Can Geopolitics Help Restore Missing Tools to the U.S. Trade Toolbox? – Matthew Schaefer, Yeutter Institute, 22 August 2022
US Congress and Biden Administration may return to more traditional trade tools or adopt new tools.
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