The global trade disputes initiated by the United States have dealt a blow to the systemic pattern of economic globalization, and brought considerable maladjustment to market participants, enterprises, governments, and investors who are accustomed to globalization. Not only is the global trading system forced to change, but the global investment system, financial system, multilateral cooperation system, geopolitical pattern have also been affected to varying degrees. Therefore, the impact of global trade disputes, in addition to the direct losses in the trade section, there are also deeper losses in terms of changes in the rules of the global economy and market system.
Zhou Xiaochuan, the former governor of the People's Bank of China, analyzed the impact of the global trading system when he attended the Qiantang River Forum held on November 2nd - 4th. As a former senior financial officer with a deep academic background and long-term central bank governor experience, Zhou Xiaochuan said that the global economic situation faces many uncertainties due to new challenges arising from trade disputes and frictions. This uncertainty has led to confusion about the prospects for economic growth, and there is no clear direction and signal for the subsequent investments. This will affect investment enthusiasm and confidence in all aspects, and economic growth will decline. Zhou Xiaochuan emphasized that it is necessary to calculate the impact of current trade disputes and protectionism on global economic growth, as well as the economic growth in each country from the perspective of resource allocation efficiency.
Zhou Xiaochuan believes that there are two calculation methods to measure the impact of trade disputes. The first is a trade account with a surface. Once there is a trade war and tariff barriers, trade volume would decrease. Some trades that were doing well in the past would experience a decrease in trade volume, while some of the investments based on comparative advantage are not doing well now. This account is relatively easy to calculate, as it is a surface trade account calculation. The second is the account that calculates the efficiency of resource allocation. Once the trade is less free, and investment having barriers, and the optimal resource allocation in the past would become impossible. If the optimal configuration cannot be done, it would be necessary to look for a sub-optimal configuration or even a poor resource configuration. As a result, the overall resource allocation efficiency would decrease. Globally and in specific countries, this would lead to a slowdown in economic growth and loss of efficiency.
Measuring trade disputes from changes in resource allocation efficiency is a deeper analysis of the impact of trade disputes on economic growth. Resource allocation efficiency is the fundamental problem of the market economy. During the 14th National Congress in 1992, China mentioned that the reason why it wanted to engage in the socialist market economy was that the optimization of resource allocation, it had started to pay attention to the calculation of resource allocation efficiency and the impact of resource allocation on the economic growth. The 3rd Plenary Session of the 18th Communist Party of China Central Committee clearly stated that China should let the market play the decisive role in resource allocation. From a global perspective, the market economy is the mainstream of the economic systems of all countries in the world. In fact, the deepening of economic globalization, the shifting of the industrial chain on a global scale, and the investment of multinational corporations internationally are all the embodiment of the market-oriented resource allocation. Once anti-globalization affects this foundation, there will be a serious impact on the market economy and economic growth.
If anti-globalization and trade protectionism prevail, resource allocation efficiency will be affected. As in Zhou Xiaochuan's analysis, if a certain developed country regains the production link that has lost its comparative advantage in the past for employment considerations, it must allocate production factors in this direction, including funds. Because some production capacity did not exist in the past or has disappeared, even after being restored, while it could create some employment, it is very likely that this is a misallocation of resources. In the end, after a few years, we might still find that this resource allocation is ineffective. In such case, it would be misconfiguration and a waste, or it could cause the decrease of efficiency in resource allocation.
It is worth noting that this change will have a big impact on the global supply chain. Under the conditions of free trade and investment facilitation, the formation of the global supply chain will find the optimal allocation in many aspects of the supply chain. Each link hopes to find the best benefit, the highest output, the quality meets the market demand and the lowest possible cost. But once there is trade protectionism, with tariffs and investment barriers, it is impossible to find the optimal allocation. Some links choose sub-optimal or not optimal supply chain structures, which will lead to the recession of the entire economic growth potential:
So far, global trade disputes are still deteriorating, and there is no trend of improvement for the time being. As Anbound has analyzed in the past, this is a new stage in the evolution of globalization. In the future, competition around market space will become an important form of national economic competitiveness. When the efficiency of global resource allocation decreases with tariffs and investment barriers, the United States sees China as a target in the trade that it should bring down. How then, should China respond and adjust to this? In our view, in addition to the short-term trade response measures, in the medium and long-term, there should be an increase in the market opening and internal reforms, taking advantage of the huge scale of the Chinese market, when the global resource allocation efficiency is reduced. This is to reform and liberalize the efficiency of resource allocation in the Chinese market and making it an "oasis" to attract international and domestic capital. The more the global trade environment deteriorates, the more China needs to strengthen its own market-oriented reform through reform and opening up. This is also the policy intention of the central leadership to emphasize deepening reform and opening up.
Final analysis conclusion:
The deeper impact of the deterioration of the global trading environment has the potential of reducing the efficiency of resource allocation and thereby undermining the global economic growth. Facing this environmental change, China needs to adhere to the general direction of market-oriented reform and opening up, and improve the efficiency of resource allocation in the Chinese market, making it an "oasis" for the global investment environment.
