He Weiwen
The Economist recently published a signed article titled 'Governments are Exploring' Local Economics' in the UK. The article points out that most regions of the world are experiencing the rise of "local economies", and governments are systematically abandoning neoliberal globalization. The phenomenon and development trend outlined in the article are worthy of further research.
The article points out that the United States and EU countries are promoting high subsidy and heavy intervention protectionist policies on a large scale, keeping industries at home. The United States has introduced the "Chip Act" and "Inflation Reduction Act", the European Union has introduced the EU version of the Chip Act and the Green Agreement Industrial Plan, and the UK Labour Party has announced that if they win the election, the proportion of industrial subsidies to GDP will increase to 10 times that of the United States. This new systemic industrial policy is referred to as "local economics" in the West, abandoning the neoliberal globalization pursued over the past few decades. The reason given by believers is to address four major risks: economic, geopolitical shocks, energy, and generative artificial intelligence.
After a brief analysis, it can be seen that the above-mentioned systemic industrial policies of the United States and the European Union have little to do with economics, and are essentially protectionist measures that deviate from globalization and multilateral trade rules.
Firstly, multilateral trade rules do not exclude government subsidies, but exclude discrimination. Subsidies for basic research, research and development, and consumption in emerging industries are common policies in various countries. But it must be provided to all enterprises selling or producing in the market of that country without discrimination, regardless of their origin; It is also prohibited to provide low-priced dumping subsidies for exports, otherwise it will constitute discrimination against market competitors. The chip and new energy vehicle subsidies vigorously implemented by the United States and Europe, especially the United States, are precisely exclusive and discriminatory. According to the "Chip Law" of the United States, any investment in a factory in the United States shall not be allowed to invest in China for ten years, otherwise financial subsidies shall not be obtained. The US Inflation Reduction Act stipulates that all subsidized enterprises must not have their key mineral raw materials from China.
Secondly, the formation and development of the supply chain must follow market laws. The regulations of the United States are exactly the opposite. Its subsidy policy does not consider the market, stipulates that chip production must be located in the United States or "allied countries with similar values", artificially sets market share, and prohibits the export of chips and production equipment of 14 nanometers and above to China. In Asia, Washington leads the "Chip Quadripartite Alliance" and the "Trans Atlantic Trade and Technology Council" formed by the United States and Europe, both of which imply excluding China.
The basic reasons for forming "local economics" are undoubtedly the so-called "four major risks", but their basic ideas and industrial policies are not proposed by economists, but by political figures based on political reasons. US President's Assistant for National Security Affairs, Sullivan, talks about the economy, which is narrated by security advisors. Its basic narrative is about controlling the economy to serve geostrategy. European Commission President von der Leyen said that the EU was "the first major economy to determine the economic security strategy". But her resume doesn't match economics either.
In the context of geopolitical opposition, some multinational companies in Europe and America have had to adjust their supply chains and return to their home countries or "friendly countries" due to their own operational security concerns. Therefore, "local economics" is not economics, but a magnificent expression of the fragmentation of the geoeconomy under geopolitical opposition. Its essence is anti globalization. A study by the International Monetary Fund shows that if the world economy is divided into different camps, the world GDP will decrease by 1.2 percentage points. If non tariff barriers are not adjusted, the world GDP will decrease by 1.5 percentage points, with the Asia Pacific region reducing by 3.3 percentage points. In the worst-case scenario, if further industry mismatch and knowledge dissemination are hindered, the world GDP may decrease by 8.5 percentage points; If it brings about a comprehensive decoupling of the economy, the world GDP may decrease by 8 to 12 percentage points.
The policy system of "local economics" cannot be achieved due to its violation of the objective laws of economic development and the historical trend of globalization. The author of the above article also believes that 'local economy' may not necessarily reduce risks, but rather may lead to countless losers.
175 years ago, Marx and Engels pointed out in the Communist Manifesto that the bourgeoisie, by expanding the world market, made the production and consumption of all countries universal. The world economy has developed into the 21st century, and almost all modern industries' resource allocation, production processes, and sales services are based on the best global resource allocation. Returning to the "local" era is generally not feasible in reality. The design, manufacturing, packaging, and sales of chips involve a very long and complex cross-border industrial chain, which cannot be manipulated by political will. US lawmakers have repeatedly requested Apple to relocate from China, and Apple has indeed relocated some of its mobile phone assembly business to India. However, the complete research and development, manufacturing supply chain, and huge ecosystem are still in China. The author of the above article also pointed out pointedly that politicians promise what they cannot provide, and in 10 years, "the level of Western dependence on China may be similar to what it is now. US and European officials have repeatedly stated recently that they will not decouple from China.
The Chinese government encourages independent innovation and also provides significant policy and financial support for emerging technology industries such as chips, new energy, artificial intelligence, supercomputing, and quantum computing. But this is not 'local economics'. The development of all these industries in China is open, oriented towards global cooperation, treating Chinese and foreign enterprises equally, following multilateral rules, and supporting globalization. The so-called "local economics" is nothing more than an emperor's new clothes, packaging the core of anti globalization. But like the emperor's new clothes, this packaging can be seen through at a glance. (The author is a senior researcher at a globalization think tank) ▲