Feb. 8, 2012
The last 30 years have witnessed the era of globalization which has been marked by the creation of an integrated global economy. Globalization has been the product of both policy and market forces, and U.S. policymakers have persistently been in the vanguard. However, what began as a project of globalization has been transformed with little explicit public discussion into a project of China-centric globalization.
China-centric globalization is characterized by three features: (1) the emergence of China as the global center of manufacturing, with China playing the role of factory for the world; (2) the creation of a new dollar zone shared by the U.S. and China and enforced by China’s adoption of an exchange rate pegged to the dollar; (3) the development of China as the fulcrum of U.S. engagement with the global economy, with the U.S. having a massive trade deficit with China and transferring significant chunks of manufacturing capacity to China.
Globalization has always been controversial but China-centric globalization has made it even more so. Globalization poses challenges for the character of America’s economy, for the goal of shared prosperity, and for U.S. national security. China-centric globalization amplifies these concerns by aggravating adverse economic tendencies within the globalization process, and by raising additional national security concerns about dependence on China, with whom the U.S. still has an uncertain geo-political relationship.
Looking into the future, the current path of China-centric globalization poses a threat to both U.S. economic recovery and global growth and development. It has not only hindered American attempts to escape from the post-bubble recession that began in December 2007 but it has also threatened to block future attempts to recalibrate and improve the globalization process. If anything, U.S. policy has failed to come to grips with the problems associated with China-centric globalization. Especially troubling is the U.S. Treasury’s policy toward China’s exchange rate. The Treasury’s past policy can be accused of dereliction of duty in its failure to protect the U.S. manufacturing sector. Its current policy of encouraging China to introduce a flexible yuan exchange rate with free capital mobility promises to compound that damage.
It is important to remember that China-centric globalization has been largely the product of U.S. policymakers and U.S. corporations. It therefore should be subject to review. As it is now, China-centric globalization has set in motion a momentous process that is causing changes of historical proportions. This process has developed rapidly with little public consideration of its implications. It was put in place in the late 1990s by a triumphant corporate sector, at a time when the public was caught up in the euphoria of a long-running cycle of asset bubbles that created illusory prosperity. Change of this proportion would be dangerous even if the U.S. and China were close allies, which they are not. At the end of the 19th century, a similar seismic shift of economic power between Great Britain and Germany, whose monarchs shared a common lineage, contributed to the tragedy of World War I. That history speaks to the dangers of such developments and should be a caution to U.S. policymakers. The troubling developments already in place and in prospect should be an alarm. Yet, U.S. policymakers do not seem to have fully grasped the dangers inherent in China-centric globalization.
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