The biggest fallout of increased US tariffs is erosion of the rule-based trading system, said BAI Chong -En, dean of the School of Economics and Management at Tsinghua University. In an interview with ET’s Banikinkar Pattanayak and Deepshikha Sikarwar , he made a case for India and China to work together to make the global rule-based landscape more friendly for the developing countries. Edited excerpts:
Global trade is undergoing a lot of changes in the aftermath of the US tariffs. China, a few years ago, had pitched itself as the “factory of the world”. What do the latest changes mean for China and the world?
The biggest impact—not only on China but on the world—is that we are going away from a sort of rule-based trading system. The rules gave people some sense of certainty—not 100%, but much more than now. So, the uncertainty brought about by these tariffs is the most damaging to China and to the world.
So far this year, China’s exports to the US have dropped by about 15%, but our exports to other parts of the world have increased. The composition of China’s exports (in terms of destinations) changed a lot. These Chinese supplies may still be going to the US (via third countries that buy from China and sell to the US). That creates a lot of waste and raises the cost of international trade.
If I think from an Indian’s perspective, I will feel very frustrated, because India has traditionally maintained a decent relationship with Russia, and so has China. It's hard for us to imagine we completely shut down our trade (with Russia). The US does some trade with Russia as well. So, why should we be subjected to a penalty? So, after uncertainty, there is also this sense of injustice (being done to us).
China was the biggest beneficiary of globalisation. China's acquired dominance in areas like rare earth and fertilisers seems to have become a geopolitical tool. What is your view on this?
First of all, where does dominance come from? We were a closed economy before the late 1970s. When our economy opened up, there were a lot of apprehensions. Fortunately, the view that becoming more open will benefit our economy prevailed, partly because of the success of some of the East Asian economies--Japan, Korea, Taiwan and Singapore. These economies were all open and they benefitted from being more closely connected to the international economy.
Now, this example of rare earths. We are not shutting down the supply of rare earth, rather we are regulating the supply. This is mainly used toward the US as a leverage. The US is making, in my opinion, unreasonable demands. They led a group of countries in blocking China's access to computer chips. This has been there for a long time—blocking China's access to chip-making equipment. So, when you are attacked, you want to find a way to defend yourself. I am not speaking for the policymakers in China here but as a scholar. I think fortunately we have this tool (rare earth) available. Some other countries may be affected, but from the Chinese perspective, if the rare earth stockpiles find their way to the US market (through third parties), it would weaken its position. So, I don't think we are using this tool to gain an advantage vis-a-vis Europe, India or other economies, but only against the US to achieve a fair arrangement.
Both India and China have warmed up to each other recently, but there is still a fair amount of trust deficit.
How can both sides narrow this trust deficit?
I think we used to have warmer relations earlier. And then our relations got affected for some reasons. As an economist, I would think having a better economic relationship is so much more important than a lot of other issues. Currently, the US dominates the area of international governance and rules. The world rule-making leadership group doesn't include any developing country. Can we work together to make the narrative more friendly to developing countries? I think we can. For example, the BRICS members can. So, India and China not only have complementarities but we can also benefit from mutual trade and investments. We can also collectively play a more positive role in international governance, including in reforming the World Trade Organisation, and in climate-related issues, etc.
Global trade is undergoing a lot of changes in the aftermath of the US tariffs. China, a few years ago, had pitched itself as the “factory of the world”. What do the latest changes mean for China and the world?
The biggest impact—not only on China but on the world—is that we are going away from a sort of rule-based trading system. The rules gave people some sense of certainty—not 100%, but much more than now. So, the uncertainty brought about by these tariffs is the most damaging to China and to the world.
So far this year, China’s exports to the US have dropped by about 15%, but our exports to other parts of the world have increased. The composition of China’s exports (in terms of destinations) changed a lot. These Chinese supplies may still be going to the US (via third countries that buy from China and sell to the US). That creates a lot of waste and raises the cost of international trade.
If I think from an Indian’s perspective, I will feel very frustrated, because India has traditionally maintained a decent relationship with Russia, and so has China. It's hard for us to imagine we completely shut down our trade (with Russia). The US does some trade with Russia as well. So, why should we be subjected to a penalty? So, after uncertainty, there is also this sense of injustice (being done to us).
China was the biggest beneficiary of globalisation. China's acquired dominance in areas like rare earth and fertilisers seems to have become a geopolitical tool. What is your view on this?
First of all, where does dominance come from? We were a closed economy before the late 1970s. When our economy opened up, there were a lot of apprehensions. Fortunately, the view that becoming more open will benefit our economy prevailed, partly because of the success of some of the East Asian economies--Japan, Korea, Taiwan and Singapore. These economies were all open and they benefitted from being more closely connected to the international economy.
Now, this example of rare earths. We are not shutting down the supply of rare earth, rather we are regulating the supply. This is mainly used toward the US as a leverage. The US is making, in my opinion, unreasonable demands. They led a group of countries in blocking China's access to computer chips. This has been there for a long time—blocking China's access to chip-making equipment. So, when you are attacked, you want to find a way to defend yourself. I am not speaking for the policymakers in China here but as a scholar. I think fortunately we have this tool (rare earth) available. Some other countries may be affected, but from the Chinese perspective, if the rare earth stockpiles find their way to the US market (through third parties), it would weaken its position. So, I don't think we are using this tool to gain an advantage vis-a-vis Europe, India or other economies, but only against the US to achieve a fair arrangement.
Both India and China have warmed up to each other recently, but there is still a fair amount of trust deficit.
How can both sides narrow this trust deficit?
I think we used to have warmer relations earlier. And then our relations got affected for some reasons. As an economist, I would think having a better economic relationship is so much more important than a lot of other issues. Currently, the US dominates the area of international governance and rules. The world rule-making leadership group doesn't include any developing country. Can we work together to make the narrative more friendly to developing countries? I think we can. For example, the BRICS members can. So, India and China not only have complementarities but we can also benefit from mutual trade and investments. We can also collectively play a more positive role in international governance, including in reforming the World Trade Organisation, and in climate-related issues, etc.
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