Increasingly Divided Global Economy
Randy Wolken, President & CEO
Over the past five years, much has changed. For decades, the U.S. and Western economies attempted to make China a partner and customer in an ever-expanding global economy. The world is increasingly centered around two competing power centers, with trade and investment flows demonstrating this trend. Last fall, China, for the first time, traded more with developing countries than the U.S., Europe, and Japan combined.
Our country has increased its focus on creating investment curbs and export bans on China’s efforts to dominate global markets. China has responded by reorienting an increasing part of its economy away from the West towards the developing world. For instance, China now trades more with Russia than it does with Germany. Soon it will do the same with Brazil.
This benefits the U.S. by making us less reliant on extended Chinese supply chains and returning jobs to states like New York. Large U.S. and European companies such as Apple, Stellantis, and HP are beginning to shift production out of China. More than one-third of U.S. companies surveyed by the U.S. China Business Council, who represent American companies in China, said they’ve reduced or paused planned investment in China over the past year, a record high and well above 22% last year. Western money is returning to the U.S. or going to places like Mexico and India, which attracted four times as much investment in new factories and offices as China last year, according to United Nations Conference on Trade and Development data.
An IMF study led by economist Shekhar Aiyar found that since 2010 foreign investment has increasingly flowed between countries in the same geopolitical bloc (as defined by how they vote at the United Nations). As a result, China received 60% less foreign direct investment in strategic sectors in 2022 than in 2015, while the U.S. enjoyed 43% more.
It’s essential to watch the developing divide in the world as Xi and Biden meet at the Asia Pacific summit, this time in person in San Francisco. When they do so, China’s economy faces multiple challenges, such as a deflating property bubble, potentially unmanageable local government debts, and slumping confidence and deflation. Meanwhile, the U.S. economy has just recorded its strongest quarter in nearly two years while inflation cools.