Homecoming

CHAPTER 1

One World, Two Systems


Years ago, during a reporting trip to Beijing following the 2008 financial crisis, I interviewed the CEO of a major European clean-energy company that was a market leader in China at the time. I asked the executive how he saw business going forward, and he said he felt optimistic—the company would be in fourth place within the next five years. I was startled. Why was falling from pole position to fourth place good news? And how could he be so precise about the future? Because, as the CEO told me, this is what Communist Party leaders had told him would happen as local competitors moved into the market.

A few years later, in 2013, I was in China again. I happened to be there right as the Edward Snowden story was breaking and as the world was digesting the whistleblower’s leaks of National Security Agency material that showed that the United States, the United Kingdom, and various other liberal democracies were regularly gathering surveillance data on citizens, often with the help of private technology and telecom firms. The American public in particular had been shocked—or, as Claude Rains’s character says in the movie Casablanca, “shocked, shocked”—to learn that the U.S. government and the private sector had shared such information.

During one of my interviews in Beijing, I broached the topic with a People’s Liberation Army general with whom I was discussing the potential for conflict between the two countries. At the time, the United States’ chief foreign policy problems were still in places like Pakistan, Afghanistan, and the Middle East. But I had been struck on another visit, to the U.S. Navy’s Indo-Pacific Command headquarters in Honolulu, by a heat map showing the locations of past, present, and possible future geopolitical conflicts. The red portions were moving inexorably from the Middle East to South Asia to the South China Sea, which is where the problems of the future seemed to lie. This struck me as a big and very underexplored story, given that most of what you could buy in Walmart had to make its way through the South China Sea to get to American consumers.

I asked the general (a woman, interestingly) what she thought about the Snowden leaks and the role of both the state and the private sector in the global economy and geopolitics. She smiled and said that most Chinese found Americans’ naïveté around such things surprising. “In China, there is no line between the country and the company.” The two were one and the same, and the latter would always be in service to the former.

These were among the many reporting moments I’ve had in China over the last two decades that made me wonder why U.S. policy makers and corporate leaders ever thought that China would miraculously take its place in the existing world order and trade system. At the time that I was having these conversations, much of the world—certainly, China—was understandably questioning the wisdom of laissez-faire, Anglo-American-style capitalism and unfettered free trade in the wake of the financial crisis. Yet policy makers in the West were still pretending that the world would reset to the mid-nineties. CEOs of large companies were willfully blind to the risks of supply chain problems and market access in China, where a new Great Power conflict with the United States clearly loomed and where the rules of the market game could, in its state-run system, change at any time. There was also a general level of arrogance on the part of the West in relation to China that I found puzzling. Why would such a large nation, with its own long history, rich culture, very different political system, and enormous market, not create its own rules as it retook its historic place on the world stage? Remember that for much of recorded history, China and India, not America, vied for the top spot as the world’s largest and most powerful economy. That’s important to remember now, because as they rise once again, the decisions that these countries make will be just as influential as anything that might happen in the United States. China’s decision, for example, to decouple itself completely from U.S. and Western economic control over the next few years is a crucial part of the story of deglobalization.

China’s most recent five-year plan released by the state codified what was already common practice: via the One Belt, One Road infrastructure and lending program, the nation would become independent of Western technology and supply chains by 2025 and would build its own regional trade routes, remaking and expanding the old Silk Road of Marco Polo’s time, a pathway that stretched from China to Europe. China would lend to emerging markets, cut its own trade deals in its own currency, buy up farmland and ports, and generally become more self-sufficient and independent of the United States. The Belt and Road Initiative, combined with a host of new trade deals in Europe, Africa, South America, Asia, and the Middle East, would make it easier for China to grow its exports to places other than the United States. Decoupling and regionalization, not a reset of globalization, was the new norm.

The economic decoupling of America and China and, more particularly, the trade war and new cold war between the two nations are sometimes thought of as a result of the misguided policies of the Trump administration. In fact, the conflicts between the two countries and their systems were there long before, hiding in plain sight. The idea that more trade would always be good for the United States has been dogma for the last half century, under both Republican and Democratic administrations. Even if deals were cut with countries that had completely different national goals and political systems, these agreements, we were told by political leaders of all stripes, would inevitably make us safer and richer. But the downsides to globalization—which range from the loss of important jobs and skill sets, to the vulnerabilities of complex and far-flung supply chains and financial networks, to the fact that China wasn’t, in fact, becoming freer as it got richer—were papered over for decades.

The only good thing that the Trump administration did economically was to stop pretending that the One World, Two Systems problem, as foreign policy wonks call it, didn’t exist. While President Trump had no coherent strategy for countering the rise of China (and was actively supportive of Chinese allies like Russia), and while his vitriolic rhetoric didn’t help the United States, the last four years did at least bring an end to the absurd Kabuki act on the part of U.S. policy makers and corporate executives regarding the reality and intractability of the China challenge. No matter how tempting that next quarter of growth in the Chinese market might be, there are no guarantees that the playing field will be fair or that the rules won’t change at any time—particularly in the most strategic high-growth sectors.

It was a terrible irony that it took Donald Trump to lift the veil on the hypocrisies of the One World, Two Systems problem, even as his own policies contributed to the challenge. Like the protagonist in Herman Melville’s final novel, The Confidence-Man, Trump was able to embed a single, visceral truth in a welter of falsehoods. So it was with the U.S. president’s anti-free-trade stance. He often couched it in terms that were xenophobic, nationalistic, or just factually wrong, but the criticism that Trump (and, later, President Joe Biden, who has continued much of the trade stance set by the former administration) leveled against China and, to a lesser extent, other nations engaging in unfair trade practices is getting at something profound. Many people simply do not believe that the current system of globalization is working in their favor. As the current U.S. trade representative under President Biden, Katherine Tai, put it in March 2022 at a presentation before the House Ways and Means Committee, “The problem that we are confronted with today—after two years of the pandemic and also Russia’s invasion of Ukraine—is that this version of globalization that we are living in has not taken us to a place where we feel more secure. We are feeling increasing senses of insecurity in terms of our supply chains and our reliance on partners who we aren’t comfortable relying on.” In fact, even before the events of the last few years, only about one in three people in rich countries believed that trade increased wages. Meanwhile, those in emerging markets are even more dubious about trade’s impact on prices; a median of 18 percent believes it lowers them according to a 2018 survey.

These feelings are what drives politics, but there are facts to back them up. Pricing has been driven down by unfettered globalization, but jobs in many places have been lost. This has led, in turn, to a highly bifurcated workforce and economy in hard-hit areas. Think of the wage pressure on labor in many rich countries or of the terrible working conditions for many of those in poor countries as companies use “free” trade to try to raise their own margins at the expense of all else.

Of course, one can’t ignore the statistical links between freer trade and economic growth in the postwar period: the two have gone hand in hand at a global level as more countries have entered the capitalist trade system. But given this, how does one account for these negative views of globalization?