Countries having cautious reliance on China while maintaining constructive engagement is essential to the future of globalisation in a world where trade is increasingly used as a weapon, according to Canada’s former deputy prime minister.
“In a world where the weaponisation of trade is real, we need to be thoughtful about where we’re building economic dependencies,” Chrystia Freeland told the Peterson Institute for International Economics during a discussion about the securitisation of trade and the future of globalisation on Wednesday.
Freeland endorsed European Commission president Ursula von der Leyen’s 2023 comments on de-risking economic ties with China, expressing the need for a global economic system “in which China works” but other countries’ vulnerabilities are limited.
“Seeking a constructive relationship with China, where possible, is the appropriate stance of the international community,” said Freeland, who is currently an adviser to Ukrainian President Volodymyr Zelensky.
“Even in business, no business likes to be dependent on a single customer, even if the customer is your great friend. I think for all of us to de-risk is a good idea.”
Freeland was Canada’s deputy prime minister from 2019 to 2024, serving the Liberal Party under then Prime Minister Justin Trudeau. She also served as Canada’s finance minister.
Examining the weaponisation of trade through tariffs and looking at how globalisation reached its current state, she spoke in particular about the effects of China’s 2001 accession to the World Trade Organisation (WTO).
Freeland called China’s WTO accession one of “the core drivers of the great disruption we’re experiencing in the world”, while highlighting the effects of the “China shock”, particularly on the US.
The “China shock” refers to the effects on manufacturing jobs in both the US and Europe following China's accession to the WTO, which then flooded the market with inexpensive goods.
“The impact of the ‘China shock’ accounted for 59.3 per cent of all US manufacturing job losses between 2001 and 2019, mostly in labour-intensive manufacturing where fewer workers had college degrees,” Stanford University’s Centre on China’s Economy and Institutions wrote in a brief published in 2022.
“I think the ‘China shock’ explains so much of US politics, so much of the rise, more broadly, of populism, more broadly of the distrust in the elites,” Freeland said.
The rise of US President Donald Trump in 2016 and to some extent his re-election was driven by the “China shock”, she added, “by the hollowing out of the rust belt in the United States, of communities that had depended on manufacturing”.
According to Freeland, what was politically powerful about Trump’s 2016 run “was that people felt in their real lives in these communities that things were not working for them”.
Since his return to office, Trump has used tariffs as a geopolitical trade tool, imposing them on America’s adversaries but also on its key allies.
Beijing has also used tariffs in the past, for example, those put on Australian wine after Canberra called for an investigation into the origins of the pandemic.
“Trade ultimately is mutually beneficial, but it creates dependencies, and I think policymakers need to be really thoughtful about what those dependencies are,” Freeland said.
“We do need to be thoughtful about countries where there is a track record of weaponising economic dependencies, and think quite carefully how to make our own countries and ideally, groups of allies, less vulnerable to that.”
These issues are key drivers for why many countries are beginning to de-risk not just from China but also from the US and Russia, bringing in what analysts say could be a new era of globalisation.
“Countries all across the world are now trying to de-risk, both from China, from Russia and the gas and oil, obviously, but also from the US economy and trying to diversify their trade relationships,” Cecilia Malmstrom, non-resident senior fellow from the Peterson Institute, said.
“Not only because it’s potentially good for the economy, but also as a part of a more broader security strategy that you need to put your eggs in different baskets, and that you need to de-risk from unhealthy dependency.” -- SOUTH CHINA MORNING POST
