No One Is Safe From the U.S.-China Trade War

Scott B. MacDonald

economy,

The world economic system is rapidly changing.

Key point: As China and America decouple their economies, everyone will be affected.

In August 2019, the changing nature of the global business landscape was brought home when President Donald Trump “ordered” U.S. companies to leave China, a declaration that came close to implying war footing. Certainly U.S., European and Canadian actions against Chinese tech giant Huawei reflected some of the risks for companies from that country venturing into the West. Global companies now have to give greater consideration to external variables which are likely to scale down profitability expectations, force changes in supply chains, and impact how companies spend and hire. Trade wars are resulting in a world with greater risk, more volatility and slower economic growth.

The core change in the global economy is the rise of China, probably the most significant development since the end of the Cold War. It represents a challenge to the “old order” defined by U.S./Western dominance in global trade, financial markets and ability to influence other countries, much of this embodied in the Bretton Woods system. Formulated in the aftermath of World War II, Bretton Woods initiated a new international economic order based on fiscal discipline, exchange rate stability, free markets and growth in international trade. Key institutions to this were the International Monetary Fund, World Bank and the General Agreement on Tariffs and Trade. The core idea was to create an inclusive economic system that made all countries stakeholders in peace and commerce. With a stake in making certain that the rules of the game were followed, all parties could benefit—at least in theory.

Since the late 1970s China has undergone a massive transformation. It was once a predominantly rural and agriculturally-oriented country and is now an increasingly urbanized country and home to the world’s second largest economy. With that transformation has come considerable power and an ambition to restore China back to the glory of the dynastic periods when it was the Middle Kingdom, the center of the world. There is also a sense of grievance as to its treatment at the hands of Europe, the United States and Japan during the era of European imperialism when a weakened China was at the mercy of other powers.