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Where Does Global Trade Go from Here?

[30.03.2021]

Turning away from global value chains is not an option. So concluded leading globalization researchers at a FernUni conference.


Man with a clipboard standing in front of stacked cargo containers Photo: Yuri_Arcurs/Getty Images
Experts agree: isolation is no solution in a globalized world.

It has been one year since the World Health Organization (WHO) declared COVID-19 to be a pandemic and worldwide trade with China temporarily ground to a halt. The Organization for Economic Cooperation and Development (OECD) corrected its growth forecasts downwards while the European Central Bank (ECB) predicted that global growth engine China would stall and bring half of the global economy down with it.

Today we know: The German economy shrank by five percent, but the worst fears for global trade have, at least for now, not been realized. And while Europe has been on a roller coaster of lockdowns, the Asian giant appears to have largely recovered. “China is by far the biggest winner in the coronavirus pandemic,” said Prof. Dr. Hans-Jörg Schmerer of the FernUniversität in Hagen. “In 2020, China was still able to achieve strong growth. In terms of domestic policy, its government was able to show strength and consolidate its power.” A development which does not surprise the economist. “Normal life could continue after a brief forced pause, because the technological options for fighting the pandemic were consistently used to contain it. Also because data protection plays a lesser role in China.”

Portrait of Hans-Jörg Schmerer Photo: FernUniversität

Prof. Dr. Hans-Jörg Schmerer

China is by far the biggest winner in the coronavirus pandemic.

This demonstration of power was an important victory for the Chinese government to re-establish public trust in its political leadership after the standoff in the trade war with the USA. But the pandemic led to enormous losses of prosperity in China as well. Prof. Dr. Hans-Jörg Schmerer expects a rapid recovery in China this year, however. Based on the current infection rate and the sluggish progress of the vaccination campaign, he is less optimistic about future developments in Germany. “The signs of a rapid recovery for Germany’s industry may be increasing, but this sector has long played a secondary role for the German labor market,” said the researcher.

Global Trade Yes, Democracy No

What troubles the economist significantly more are the conclusions that the Chinese government could draw from the handling of the pandemic in countries like Germany. “China may be exiting the crisis stronger, but also strengthened in its assumption that democratic states are worse off when it comes to fighting the pandemic. The West’s desire to democratize the People’s Republic in its own image may fail as a result.”

The professor, who holds the Chair of International Economics, sees this lack of democratic order and rule of law as a serious danger for the world economic order. “China has been accused again and again of flooding the world with cheap products. The products are of course only this cheap because Chinese businesses are subsidized by the government. This is highly unfair, but the World Trade Organization must first prove that China is engaging in unethical practices – and that’s not so simple.”

Isolation Means Automation

For the FernUni researcher, there are thus only two possible approaches for the world to deal with China as an economic power in the future. He recently discussed the first with other globalization experts during an international online conference hosted by the FernUniversität in Hagen and Westminster Business School. This could involve turning away from global value chains. Businesses would instead shorten their supply chains and bring stages of their production back into domestic territory – a step that would enable more independence from other markets and which has been openly discussed during the coronavirus pandemic.

Researchers discussing in a video conference Photo: FernUniversität
Globalization researchers met in the virtual Global Economic Policy Group Meeting.

Economist and President of the Kiel Institute for the World Economy Gabriel Felbermayr, whom Schmerer invited as a guest to the Global Economic Policy Group Meeting 2021, described the consequences of this approach. Isolationist tactics in the hope of becoming more independent from Chinese products would lead to a wave of automation in German companies in order to keep production costs low. As one can imagine, this would be a bad option for the labor market and would bring an enormous loss of prosperity with it.

Another Digital Conference Planned

As a result, only the second approach to China actually comes into question. Here, Schmerer and the other workshop participants put the onus on the World Trade Organization. The goal must be to reshape future world trade more fairly and justly with regard to China. How exactly this can be accomplished is also a regular topic of discussion in the Global Economic Policy Group Meeting.

This year the meeting, which was initiated in 2019 and always invites renowned globalization researchers, took place in digital form for the first time. In addition to Gabriel Felbermayr, Yifan Zhang from the Chinese University of Hong Kong spoke about different aspects of globalization and China’s role in the global economy.

The workshop offers a forum to discuss the current economic and trade policy questions and challenges which impact the global economy. And: “When you talk about globalization, at the moment you can’t avoid talking about China, and that’s unlikely to change for the time being,” Schmerer predicted. The next Group Meeting will most likely take place in digital form again in May.

The FernUniversität’s Center for East Asia Macroeconomic Studies (CEAMeS) organizes the Global Economic Policy Group Meeting with contributions from researchers from around the world. Additional support is provided by the University of Westminster, London, UK Westminster Business School.

LeAnn Kearney | 12.08.2021