The long overdue death of globalisation

Writing in the Telegraph, the penny has finally dropped for Jeremy Warner.

Whatever the merits or otherwise of Joe Biden’s latest package of tariffs on Chinese goods, they signal the final death of early 21st century globalisation.

About time too, many will say. For too long, Western economies have been the victims of Chinese mercantilism. Trade with like-minded regimes by all means, but not with those that peddle an autocratic alternative to Western liberalism and democracy.

By inviting China into our free trade system, we have created a monster that lies, cheats and steals its way to economic advantage, and now threatens the West with economic ruin.

I’ve held this view for quite some time now. I wrote about it in 2018 having long realised that Chinese trade was not in our interests. I realised the game in play back in 2007 when I was in need of a lawnmower. Flush with available credit I went shopping in search of the ideal machine. Traditionally one might have purchased a recognised brand like Qualcast. A known British prestige brand (actually owned by Bosch, but still a European brand). Not this time though.

What I bought was a no-name Chinese piece of junk. What suckered me in was the novelty of being able to afford a petrol driven lawnmower. You know, like posh people have. The thing about this lawnmower was the chassis might as well have been made of blancmange for all the structural integrity it had. Over only a few uses, the pressure from pulling the pull-cord while holding it down with the footplate very soon warped the outer housing so that it was no use at all. It was a rip off. A clone made from cheaper, inferior materials built to a far lower standard.

And this is why only a fool opens their borders to Chinese goods. Free trade dogma has it that if you open up your borders to competition then everybody wins. Everybody has cheaper stuff. But that's only fair if there is a level playing field. You can only really have free and fair trade with like-minded operators.

By liberalising trade with China we’ve opened the floodgates to cheap crap built to stolen specifications in one of the greatest wholesale intellectual property thefts of all time. There was never any possibility that domestic firms could compete and now we're in a place where it's nearly impossible to find high quality, from electronics and solar panels to fashion.

Two decades on from buying that lawnmower and the paradigm still exists only we shop directly from Amazon, where you're very often ordering directly from a Chinese distribution centre, circumventing taxes along the way - where we often find the item is, putting it politely, not as described. So not only have we destroyed UK brands and, driving down overall standards, we've destroyed UK retail and manufacturing in the process. Exactly as China intended. Nothing is unaffected.

Back in 2018, I illustrated my wider point with an article in The American Conservative.

A federal judge recently issued a $1.5 million fine to a Chinese wind turbine company, Sinovel, for stealing key intellectual property from a Massachusetts technology company, American Superconductor (AMSC). 

China’s growth into the world’s leader in manufacturing has been largely dependent upon stealing the trade secrets of foreign companies. The details of the Sinovel case demonstrate the severe damage associated with this crime. Sinovel had a $700 million contract with AMSC for the use of its software. However, Sinovel stopped paying for the software in 2011 when it owed AMSC over $100 million.

At that point, Sinovel no longer needed the software because two of its employees had bribed an AMSC tech who had stolen the company’s source code. He was offered close to $2 million, along with a variety of other enticements. The theft devastated AMSC’s stock price and reduced its market value by roughly $1.4 billion. It also forced the company to slash its workforce by 70 percent (roughly 700 employees) and relocate its headquarters to a much smaller venue.

China’s intellectual property (IP) theft costs the U.S. economy between $225 billion to $600 billion annually, according to the Commission on the Theft of American Intellectual Property. Trump cited that estimate when issuing a $34 billion tariff on Chinese goods that went into effect earlier this month.

Of course it never suited western politicians to counter this economic warfare. Politically it was convenient for them. People felt wealthier and it made the politicians look good. In thrall to the cult of GDP, who could complain at booming retail sales? It also helped inflate our export figures. China would send us ships full of knock-off tat and we'd send back containers of waste plastics. Notionally as a raw material for recycling, but actually ending up in Chinese landfill. In 2014, 2015 and 2016 the UK exported 800,000 tonnes of plastic waste a year. In 2014 and 2015, 500,000 tonnes of that went to China and Hong Kong, while in 2016 it was 400,000 tonnes.

We should be under no illusions. China, and to a large extent India, have been waging a silent economic war on the West. We allowed them to do it to us, and we’re still letting them. In our mad dash for Net Zero, we’ve punished our own automotive and manufacturing industries, and now our markets are flooded with surplus Chinese EVs and solar panels, to the extent that tariffs are now essential. As Jeremy Warner’s piece notes, we’re looking at the end of an era.

It’s also, as far as I can see, the end of the World Trade Organisation, whose rules are routinely treated by the US and China as an irrelevance. Biden’s latest package of tariffs are a clear breach of the WTO’s “most favoured nation” clause, which seeks to stop countries discriminating against individual regimes with targeted tariffs. Yet he has no qualms about flouting it, arguing that the old rules of engagement no longer apply. He’s right, sadly. The WTO was made for an altogether more benign world, where free trade was genuinely thought to be the best guarantor of progress, peace and stability. China’s growing challenge to US hegemony has swept those assumptions away.

I’ve long suspected that the WTO would be the first major institutional casualty of the post-Covid era. The EU the only major doctrinal supporter of the WTO, proliferating the WTO’s agreements through its boilerplate FTAs. It was in the DNA of the neoliberal era. Ever since Brexit, though, the forces of economic nationalism have reasserted themselves, along with the desire to put the direct national interest first. European elites just haven’t woken up to the new reality yet. They remain wedded to the ever shrinking, soon to be defunct “international rules based order”.

Now, though, comes the great unravelling. We’ll keep mouthing the same platitudes about free trade, but carbon border taxes will quietly dismantle the trade liberalisation of the last thirty years.

The problem for us though, is that cheap goods from China were instrumental in keeping the cost of living down, fuelling a consumer boom and easing pressure on wage settlements. Lack of access to China's manufacturing capacity will have a profound effect on western economies. We’re in for a painful realignment.

That said, it’s better late than never. Though it’s shutting the stable door after the horse has bolted, we’re undoing a historical mistake, and one that could be beneficial in the long run.

On that score, I wouldn’t be much of a blogger if I didn’t take this opportunity to bask in the smugness of having realised this a decade ahead of the British media and the political class. (But then you didn’t have to be nostradamus to see how it would play out). I do feel vindicated, mind you, that I vehemently opposed the ERG’s unilateral trade liberalisation agenda during the Brexit era. The Brexit vote was not a vote for untrammelled free trade. It was quite the opposite.

What I’d reiterate now, is that whatever is true of China is also true of India. India is not an ally and “free trade” with India is not in good faith. If we are moving to a multipolar world, Britain must be more strategically minded in its trade relationships. Our strategic interests necessarily require reindustrialisation and reshoring, and if we can no longer rely on China for cheap manufactured consumables, we have to get serious about energy. Defeating Net Zero ideology becomes all the more urgent.