Fundamental Differences Between Economic Models

Trade used to be a subject that incited yawns. No more – trade is now a platform where powerful global rivalries play out.

Stephen Olson, research fellow at the Hinrich Foundation in Hong Kong, said trade has taken on strategic geopolitical overtones that are spilling over into foreign policy. “You could never divorce it. But what’s different today is that the linkage has become much stronger,” Olson told a National Press Foundation fellowship.

The current trade war between the U.S. and China is a manifestation of a much larger systemic challenge, Olson said: “How do you reconcile two fundamentally different economic systems under the rubric of a single global trade architecture?”  The U.S. is a market-driven economy that has traditionally pursued a policy of free trade; China is a centrally-managed economy pursuing state-directed capitalism.

More simply put, the global trading system is based on transparency while China is opaque.

Olson said the existing global trade architecture is predicated on Western economic models and the presumption that every country would play by the same rules. “Nobody could have conceived of a country like China playing the game by radically different rules,” he said. Furthermore, China’s model is more entrenched than ever and Olson said flatly, “China will not accept a move toward the Western system. Its state model is here to stay.”

The new international playing field, Olson said, is built to China’s advantage – and possibly to the detriment of the U.S. That helped create the anti-Chinese resentment that President Donald Trump is trying to exploit with tariffs.

“I truly hope Beijing understands that these sentiments were not created by Donald Trump. He is a symptom. He is not the cause. These sentiments are going to outlast the Trump presidency,” Olson said, adding that the simmering trade disputes would have burst into the open even if Hillary Clinton had won the 2016 election.

“It was a day of reckoning that was going to happen anyway” as the U.S. business community felt the screws being tightened, Olson said. The stark reality is that China’s model is more entrenched than ever, and Olson posited that Republicans and Democrats increasingly agree that the U.S. needs to take a more confrontational stance with China.

This program is funded by the Hinrich Foundation. NPF is solely responsible for the content.

Stephen Olson
Research fellow, Hinrich Foundation
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