China-Centric Globalization

I often felt that textbook treatments of international trade failed to reflect the reality of what was actually taking place. It was important to show how trade imbalances might be moderated by currency exchange rates, but international trade is no longer based upon an exchange of goods and services between nations. This article describes a new system of trade that is based upon a new system of global production networks. That system requires mobility in the means of production, including capital, technology and organizational know-how. Moreover, China is at the center of this system. It has become the manufacturing center for the global economy. Its economy is based upon exports but 50% of its exports are from multinational corporations to other markets. If joint ventures with multinationals are included, over 75% of its exports are from multinational corporations. This article describes how this movement to a China-Centric system of trade has had a profound impact on the rest of the world.

One of the impacts is on manufacturing and economic security. Economic growth is dependent upon increases in productivity and manufacturing is the source of much of a nations productivity growth. In 2007 US imports from China amounted to 20% of manufacturing output produced domestically. Moreover, 600 R&D centers have been established in China by multinational corporations. This represents as important transfer of knowledge and know-how to China. Some of the implications of this trend are outlined in the article.

China's trade surplus with the US has made China the owner of 41% of foreign official holdings of US treasuries. The value of China's holdings in 2011 was $1.279 trillion. While it is easy to over-emphasize the dangers of China's position, it does give China considerable influence because of its creditor relationship to the US. It has a similar position with Europe which is its largest export market.

China's geo-political influence has also been increased substantially. It is the largest export market for East Asian countries which export parts to China for final assembly. It has been the source of growth for many East Asian economies. It imports large quantities of commodities from Australia and Latin America which has contributed to their growth as well. China pays for these imports by exporting manufactured products to them. That has also happened in Africa which exports commodities to China in exchange for manufactured products. Increases in China's geo-political influence means a reduction in the influence of the US and Europe.

So far, multinational corporations have been the beneficiaries from this arrangement with China. It has reduced their cost of production and expanded demand. It has also opened up new markets for their products. The implications of this trend are being felt however in many parts of the world as manufacturing jobs have been lost and economic growth has stagnated. Its hard to determine what the future holds for this new form of international trade.