[Shang-Jin Wei] Understanding China from Nixon

On February 21, 1972, Richard Nixon became the first U.S. President to visit the People’s Republic of China, setting in motion a process that would end China’s decades-long isolation and jump-start the emergence of a modern economy and dynamic. But, despite the seismic economic changes in China over the ensuing half-century, many Westerners see today’s People’s Republic as an unreformed communist country whose unfair trade practices harm Western workers and consumers. While this impression is partly a byproduct of current geopolitical competition, it also reflects a lack of historical perspective.

At the time of Nixon’s visit, China was as isolated and closed off from the world as North Korea is today. Ordinary Chinese did not have the freedom to choose where to work and had to accept jobs assigned by their local government. Almost all Chinese adults worked for the state or in a state-owned company, as no private domestic companies or foreign companies operated in the country. Nixon’s entourage also noticed a startling lack of color on the streets, as most Chinese wore blue or green. There was not a single foreign brand on the streets of Beijing or Shanghai.

Today, Chinese people can choose where they work, more than 80% of the workforce is employed by non-state-owned companies, and wages are determined by supply and demand on the work market. An international tourist cannot tell from people’s clothes alone whether he is in Shanghai, Seoul, Tokyo or Taipei. Virtually every major global brand that can be seen in New York, London, and Singapore is also ubiquitous in major Chinese cities.

Apple, Boeing, Caterpillar, Starbucks and many other foreign companies are currently doing good business in China, supporting the returns of US pension funds and mutual funds investing there. General Motors sells more cars in China than in America or any other market. And Chinese companies wholly or majority-owned by foreign investors account for 40% of Chinese exports.

At the time of Nixon’s visit, the Chinese government’s most important border control policy – as in East Germany then or North Korea now – was to prevent ordinary Chinese from fleeing the country. for real. In 2019, the last year before the onset of the COVID-19 pandemic, 150 million Chinese tourists visited the United States, Europe, Southeast Asia and other regions, and returned home. them voluntarily. The personal freedom enjoyed by ordinary Chinese people today was unimaginable in 1972.

China’s transformation has not resulted in Milton Friedman’s type of capitalism, in which the state plays a minimal role in the economy. But China has adopted many regulatory institutions similar to those of Germany, Japan and even the United States. The Chinese Food and Drug Administration, created in 1998, is partly inspired by its American counterpart. And the design of its State Environmental Protection Administration (now called the Department of Ecology and Environment) was influenced by that of the US Environmental Protection Agency.

Even China’s much-criticized industrial policy drew intellectual inspiration from Alexander Hamilton, who pioneered the concept. The China 2025 program, which aims to promote what the Chinese government sees as the industries of the future, resembles less Soviet central planning than the German Industry 4.0 initiative or even the many American industrial policies.

So, was Nixon right to help China reconnect with the world? To the extent that his visit and subsequent U.S. policies contributed to China’s success in lifting a billion people out of abject poverty, it is hard to think of any other initiative that could have done more to promote well-being. To be human.

Of course, that was not the motivation for Nixon’s diplomatic coup, which strengthened America’s hand in its fight against the Soviet Union. But equally important – but often overlooked – is that American households and businesses have benefited enormously from China’s economic boom.

US exports to China have grown faster than US exports to Europe, Japan, Mexico, Canada, Brazil or Australia over the past three decades. While imports from China appear to have contributed to a decline in manufacturing jobs in the United States, employment and value added in modern American service sectors have grown faster, as low-priced Chinese goods such as laptop computers and electrical equipment boosted efficiency. Cheaper Chinese goods undoubtedly helped keep commodity prices low in Western economies from the 1980s until recently. And throughout the period of America’s increased economic engagement with China, there has been no secular rise in unemployment in the United States.

Former US President Donald Trump’s misguided trade war with China implies a reversal of these trends. By raising tariffs on Chinese imports to the level that prevailed under the Smoot-Hawley Tariff Act before World War II, Trump ensured that American households and businesses faced higher prices than they did. would have done otherwise. The US trade deficit has widened rather than narrowed, in part because US companies are losing competitiveness in the global market due to the trade war.

As US policymakers are tempted, for geopolitical reasons, to end the policy of economic engagement with China pursued by successive administrations in the decades following Nixon’s visit in 1972, the risks are significant. The American standard of living would probably increase more slowly. As Chinese economic growth would suffer, support for American institutions and ideals among many ordinary Chinese could also decline. If a US decoupling strategy were to accelerate China’s strategic rapprochement with Russia, perhaps even culminating in a formal alliance, a combination of Russia’s nuclear arsenal and China’s powerful economy could present a more nightmarish challenge to the American global hegemony.

Fifty years after Nixon’s historic visit, China-US relations are at a historic nadir. Although finding common ground with China seems difficult in the current geopolitical environment, the logic that China’s engagement in the world can enhance Chinese people’s personal freedom and also bring benefits to American households and businesses remains truer than ever.

Shang Jin Wei
Shang-Jin Wei, a former chief economist at the Asian Development Bank, is a professor of finance and economics at Columbia Business School and Columbia University’s School of International and Public Affairs. — Ed.

(Project Syndicate)

By Korea Herald ([email protected])

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