Business is about opportunity for profit, but opportunities in today’s global economy depend on policies, perceptions and power.
The sweeping economic changes brought about by the World Trade Organization (WTO) did two things: it created opportunities for companies to improve profits by tapping into lower cost labor and manufacturing; and it put the United States and the developed countries at the apex of the world’s economic systems.
Since December 2001, when China officially became a member of the WTO, China’s place in the world’s economic landscape has changed dramatically. In terms of GDP, China overtook Britain and France in 2005, Germany in 2007 and Japan in 2010.
Today it ranks as the second-largest economy behind the United States, but for how long? Goldman Sachs predicts that China will surpass the United States to become the world’s largest economy in 2027 and will be twice as large as the American economy in 2050. Price Waterhouse Cooper predicts that China will surpass the United States as early as 2020. The Carnegie Endowment for International Peace predicted that it would occur by 2035.
The common denominator for each of their predictions is China’s growing domestic demand, spurred by increases in wages earned from a balanced export and internal consumption model.
The road in front of China is far from clear and will not be easy. Behind the GDP growth, China’s population, lack of per capita resources, banking, real estate and over capacity issues are looming, but how China is addressing its issues is starkly different from its developed competitors.
Our costly military efforts in Afghanistan and Libya have saddled us with an estimated $4 trillion in past, ongoing and future liabilities and it is doubtful we will have much to show for it.
Even today, we are being pulled back to the Middle East (often referred to as “the graveyard of empires”) through Syria, Iran, Egypt and Israel, with no end in sight. The “Pivot to Asia,” aimed at maintaining our influence in the fastest-growing global markets, has turned into a “head fake.” For the United States, trade is a reward meant to acknowledge or encourage free market democracies. For China, trade is simply an opportunity to propel its economy.
The irony is that we, the “free market capitalists,” are more ideologically motivated in our trade efforts than China, the “communists/socialists.” The result is that China’s non-interventionist trade and prosperity policies are winning it more friends than our Policeman of the World trade and protection as rewards strategies.
This is not to suggest we throw our morals or friends out with the trash, but it might be worth looking at whether we are exercising moral leadership or acting self-righteously.
It is a question which is hard to escape as the weekly Snowden disclosures erode our sense of privacy and alienate others around the world.
As we thrash about, China is making inroads. President Barack Obama’s preoccupation with the fiscal fight kept him away from the Association of Southeast Asian Nations (ASEAN) summit. This left the stage to China’s President Xi Jinping and Premier Li Keqiang, who used the opportunity to mount a massive charm offensive. Using trade and prosperity as their centerpiece, they signed trade agreements aimed at increasing ASEAN trade, from its current $400 billion to $1 trillion (U.S.). The master stroke though, was China’s offer to work on a Code of Conduct for the South China Seas territorial disputes. By addressing the one major issue which it had previously dodged over the last three ASAEN Summits, China undercut our main bargaining chip, security, as we stood on the sidelines. The result was Vietnam agreed to bilateral talks about areas in dispute.
Why is this important? In the race for resources and markets, China is quickly gaining the upper hand. The 10 ASEAN nations include Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma (Myanmar), Philippines, Singapore, Thailand and Vietnam. Together they represent over 600 million people, 100 million more than the total population of the European Union. They are considering their own free trade zone, which could eclipse our Trans-Pacific Trade Partnership. Given that China is already the major trade partner, we have a lot of ground to make up if we wish to stay competitive.
So why is this important to you as you plot your global strategy from the desk of your Midwest office?
I grew up with the assumption that the United States is the best place to do business from. Our trade agreements, military and economic power put us far ahead of the crowd, but today as perceptions about the United States change, we either need to return to the days when we led by example or start thinking about doing business through other countries.
If China is able to stick to its current political and economic trajectory it could surpass us as the place to do business in and from.
Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.
