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Trade Barriers Will Not Stop China’s Rise

If, back in the 1980s and 1990s, the US government, rather than arguing for Chinese economic opening, had prohibited any US company from investing there, China’s rise would have been significantly delayed, though not permanently prevented. Because that did not happen, China’s rise is now self-sustaining.

LONDON – There are widespread worries that US President Donald Trump’s protectionism will erode the long-term benefits of global trade. There are also hopes, mostly among Trump’s supporters – including many US companies – that tough policies can prevent China from becoming America’s technological equal. But worries about the long-term impact of reduced global trade may be exaggerated, and the hope of keeping China down has no chance of being fulfilled.

Trade occurs for three reasons. For starters, countries have different inherent resources: some have oil, others copper; some grow bananas, others wheat. If that trade were stopped, global prosperity would suffer. But trade in commodities and agricultural goods actually counts for a minor share of total trade, and will undoubtedly continue to do so.

Trade also reflects differences in labor costs. Low-cost countries produce labor-intensive manufactured goods, using machinery imported from high-labor-cost countries. As economists such as MIT’s David Autor have shown the impact of this in developed countries can be both bad for some workers and good for company profits. But it can be extremely good for any developing country that fosters a fruitful balance of inward investment and local entrepreneurship and uses the proceeds of export-led growth to invest in infrastructure and skills. China’s dramatic economic success would have been impossible without trade initially driven by labor-cost differences.

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