12/19/2024
With the incoming Trump administration and the promise of tough tariffs, I started researching how we got to where we are today.
I came across an article from the Council on Foreign Relations, titled, "What Happened When China Joined the WTO?" and the United States thought it was directing the show when China acceded to the World Trade Organization. Instead, China wrote its own script (June 17, 2021).
The article highlights, “American consumers broadly benefited from China’s WTO entry because they could buy goods at lower prices. Corporations profited from increased access to China’s massive market. In 2017, for example, Chinese consumers accounted for about 15 percent of Apple’s sales, and since 2001, U.S. exports to China have skyrocketed by 450 percent.”
Indeed, China’s accession to the WTO marked a significant milestone. According to a Cambridge University study, "China and the WTO: A 20 Years Assessment", China—now the world’s second-largest economy—saw its GDP surge from $1.339 trillion in 2001 to $14.723 trillion in 2020. Meanwhile, China became the leading trading nation, with exports increasing nearly 8.74 times, from $266.1 billion in 2001 to $2.59 trillion in 2020. Imports also climbed nearly 7.44 times, from $243.55 billion to $2.05 trillion over the same period.
However, China’s economic transformation cannot be viewed as an isolated event. It must be understood within the broader context of globalization and its underlying logic.
At its core, globalization is driven by multinational corporations seeking to maximize profits through efficiency, cost reduction, and the free flow of goods. This pursuit of greater profit margins led companies to voluntarily relocate manufacturing processes to regions with lower labor costs. The United States, as the country with the world’s most powerful corporations, played a central role in shaping this global economic landscape.
Globalization had already shown its power in the economic rise of the Four Asian Tigers—South Korea, Taiwan, Hong Kong, and Singapore. Before the 1970s, these economies were primarily dependent on agriculture and light industries. By adopting export-oriented strategies and strong development policies, they first absorbed labor-intensive industries like textiles, clothing, and toys brought about by global trade. Gradually, they advanced into technology-intensive industries, such as electronics, semiconductors, household appliances, and automobiles. By the 1990s, the Four Asian Tigers had entered the ranks of developed economies. Their success was fueled by the openness of the U.S. market, capital inflows, and technology transfers.
A Chinese saying goes, “水涨船高” (shuǐ zhǎng chuán gāo) means: When the water rises, the boat floats higher. This reflects the interconnected nature of globalization, it can lift every boat (country) in its process.
When China joined the WTO in 2001, it already had a clear roadmap: replicate the success of the Four Asian Tigers but on a far larger scale. With its vast reservoir of low-cost labor and continuous inflow of Western capital and technology, China rose with the tide and achieved an unprecedented economic miracle.
Of course, in this round of globalization, the United States has been a significant beneficiary as well.
When my children were little, I took them to Beijing, where McDonald’s was the most popular choice for kid's birthday parties, and Coca-Cola was their favorite drink. These symbols of American prosperity became deeply integrated into China’s consumer culture, demonstrating how U.S. companies profited from China’s emergence. Now Chinese parents save money to send their children to America for higher education.
Consider Apple: it is the world’s most valuable company, yet 90% of its phones are manufactured in China. Walmart, the world’s largest retailer, procures 70% of its global inventory from China. Tesla, another success story, derived 40% of its global sales in 2022 from the Chinese market, with its Shanghai factory producing over half of its vehicles.
America’s prosperity today has been built, in no small part, on the foundation of China’s manufacturing power—mature supply chain. China today not only provides an immense consumer market but also possesses unmatched manufacturing capabilities. Over the past two decades, the globalized division of labor—where American design and innovation meet Chinese manufacturing strength—has created a win-win scenario. However, as geopolitical tensions rise and economic priorities shift, the sustainability of this symbiotic relationship faces increasing uncertainty. All remains to be seen with the entrance of Trump into the White House next year.
Continue tomorrow…