China, Global Governance, International Trade & Finance, Power & Security China and the West: growing apart as geopolitical tensions grow

This article is a product of Perry World House’s 2022 Global Order Colloquium, “A Fracturing World: The Future of Globalization.”

The model of increasing economic interdependence between the West and the emerging world (especially China) was built on assumptions that no longer hold. The West assumed that keeping high-value production at home would create growth-stimulating wealth, and that this wealth would be shared to keep the middle class thriving. However, while multinationals have generally benefitted from globalisation, the middle class in the developed world, especially in the United States, lost purchasing power as manufacturing jobs were shifted overseas. Furthermore, developed world tax bases have shrunk as multinationals have relocated to low-tax jurisdictions, encouraged by a shift towards supply chains that create loopholes in the allocation of profits.

The 2008 global financial crisis, which started as a sub-prime crisis in the US, showed clearly that the West’s economic model was faulty and needed to be repaired. One of the unintended consequences of the crisis was a collapse in global trade, which ended up being a structural trend. Since 2008, global value chains have contracted, trade in intermediate goods has decelerated and foreign direct investment (FDI) has declined globally.

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