Challenges in maintaining balance in economic partnership with the West and China

As the second largest economy in the world and the largest trading country worldwide, China’s global importance cannot be underestimated. What makes China unique as a trade partner is its huge capability to produce efficiently a whole array of commodities ranging from labour-intensive manufacturing to high-tech products.

Compared to the rich industrialised countries, its per capita income and wage levels are still much lower, so that it can export labour-intensive goods to those countries.

At the same time, it can export technology-intensive commodities to the developing countries at a cheaper price compared to the industrialised West. This pattern of export also dictates China’s import needs; it imports from other developing countries mainly minerals, fuels, agricultural primary goods and other raw materials to run its industries. From the industrialised countries, China mainly imports high-tech items for which it still lacks enough skills and technological expertise. The versatility of China’s industrial capability also enables it to be deeply integrated in the global supply chains of various commodities.

China has thus huge asymmetries in its trade partnerships. It has a very large trade surplus with its largest trade partner, the US, which is a source of imbalance and tension not only for the two countries but also for the entire global economy.  Among the industrialised countries, China has a trade deficit only with its immediate neighbours, namely, Japan, South Korea and the territories of Taiwan and Hong Kong. But, more important for our discussion here is the asymmetry in the pattern of its trade with other developing countries.

China is hardly a destination of labour-intensive manufacturing exports for the developing countries; rather it competes with them in exporting such products to the industrialised countries. On the other hand, developing countries depend on China for importing at competitive prices manufacturing items such as various kinds of machinery, electronic products, chemicals and technical apparatus. Thus, while China is an important trade partner for the developing countries as a source of import, the resulting pattern of trade is hugely imbalanced against the latter.

Even India, the other Asian economic giant, currently exports to China less than 13 per cent of what it imports from China (US$ 15 billion and US$118 billion, respectively, in 2022). The only exceptions are some mineral-exporting African countries which have balanced trade with China.

The trade dependence of the developing countries on the industrialised West is in respect of the destination of their labour-intensive manufacturing exports. This dependence is more crucial for resource-poor countries with abundant labour, since such resource endowment dictates that these countries have to rely mainly on labour-intensive manufacturing exports for foreign exchange earnings.

It is not easy for such a country to diversify either its export bundle or the destination of export. Bangladesh typically exemplifies this contrast in trade relationship with the industrialised West vis-à-vis that with China. While China is the largest source of its imports (neighbouring India being the second), its exports predominantly consist of readymade garments mainly produced for the markets in the industrialised West.

Navigating external economic policies in an increasingly complex global order will not be easy for the less developed countries. A main challenge is how to conduct economic diplomacy so as to have an appropriate balance between the industrialised West and the emerging China bloc, which now includes Russia as well.

The rise of regional powers further complicates the scenario. For example, the two Asian giants, China and India, which are adversaries to each other, compete to promote their economic interests in neighbouring Bangladesh (and in some other South Asian countries), thus putting Bangladesh in a difficult balancing position. Another imperative for the energy-deficit countries is to maintain appropriate relationships with the oil-exporting Middle East, which is itself caught up in intricate geo-politics.

China’s loans, mostly in the form of suppliers’ credit can be important for funding badly needed infrastructure projects in less developed countries. But easy access to such commercial loans entails the risk of becoming overindebted.

As mentioned above, China would expect the indebted countries to support its stand in international forums, which may be contrary to the principled stand of those countries. It was with the support of those countries that China has recently been able not only to outvote the West-led motion at the UN condemning China’s repression of the minority Muslims but also to actually praise its human rights record.

On the ideological front, China is trying to offer a development model to the developing world which is a mix of market liberalisation and state control and in which priority is given to economic growth over the Western concept of democratic values. This China model may appear attractive to developing countries with authoritarian regimes, particularly those with soured relationships with the US and other Western democracies.

It remains that most of the less developed countries, particularly the ones which are striving to diversify and technologically upgrade their economies, have high stakes in their relationships with the industrialised democracies. The advantages from this relationship are manifold: ranging from trade preferences offered to their labour-intensive manufacturing exports, to receiving foreign aid and concessional loans bilaterally or through the IFIs, and to hosting Western multinationals which bring modern technology along with FDI.

To reap the full benefits from such relationships, these countries need to improve their governance system and investment environment and fulfil the criteria of global conventions such as regarding human rights and labour standards. The Western powers may apply these criteria discriminatingly to suit their geopolitical and security interests; but this does not diminish the value of fulfilling these criteria, since democratic values and human freedoms are important in their own rights.

The challenge for the less developed countries is how to align the political interests of their ruling regimes with upholding these global humanitarian values and also with a strategy of securing maximum global economic benefits for the country. The more a regime has legitimacy in the eye of its own people through popular mandate, perhaps the more will be its capacity to achieve such alignment of the country’s interests with those of the ruling regime itself. Concomitantly, an authoritarian and repressive regime will feel more constrained to do so. Such a politically weak government is also more likely to succumb to the pressures of foreign governments and the multinational companies backed by them to accept exploitative economic deals.

A second challenge is to do with the quality of economic management and performance. Once a developing country is able to raise the efficiency of its industries across both export-oriented and import-substituting ones, it can afford to go for trade agreements with reciprocal tariff concessions rather than seeking one-sided trade preferences. Vietnam, for example, has forged numerous bilateral trade and investment protection agreements with numerous countries including Japan, UK, EU, and most recently, the US.

The Western powers, particularly the US, could ignore the human rights issues of communist Vietnam since they were not offering any no-reciprocal trade preferences and also because of the geopolitical strategy of neutralising the deep trade relations of Vietnam with China. Moreover, the recently signed US-Vietnam partnership agreement will allow Vietnam to access technologies related to a.i., microchips and semiconductors, in which countries like Malaysia and India are also interested.

These are all important lessons, particularly for Bangladesh which is poised to graduate from the LDC status and, in a few years’ time, will no longer be able to claim trade preferences on the basis of such status.

* Wahiduddin Mahmud is an economist and former adviser to the caretaker government