Case Study

Read the materials below and answer the following questions.

Reading material (I)

Our world is at a turning point. Globalization is under siege. Tensions between the US and China are growing. We wonder what the future holds, and how countries can collectively find a way forward to maintain peace and prosperity in the world. The US-China bilateral relationship is the most important in the world today. How the two work out their tensions and frictions will define the international environment for many years to come. The relationship has already altered significantly. China has totally changed since it started opening up forty years ago. Its GDP per capita has grown by more than 25 times in real terms. China is now the second largest economy in the world.

Both China and the rest of the world have to adapt to this new reality. China has to recognize that it is in a totally new situation created by its own success. China can no longer expect to be treated the same way as in the past when it was much smaller and weaker. China may still be decades away from becoming a fully developed advanced country, but it cannot wait decades before taking on larger responsibilities.

Having gained much from the international system, China now has a substantial stake in upholding it, and making the system work for the global community. Chinese leaders have spoken up strongly in support of globalization and a rules-based international order. China must now convince other countries through its actions that it does not take a transactional and mercantilist approach, but rather an enlightened and inclusive view of its long term interests.

For example, when China joined the WTO in 2001, its merchandise trade accounted for only 4.0% of world trade. Since then Chinas share has almost tripled, to 11.8%. This is why the trade arrangements and concessions that China negotiated when it joined the WTO are no longer politically wearable for other countries. It is in Chinas own interest to prevent the international framework of trade from breaking down, and to implement timely changes that bring about greater reciprocity and parity with its trading partners, and that are more consistent with present day Chinas more advanced state of development.

The rest of the world too has to adjust to a larger role for China. Countries have to accept that China will continue to grow and strengthen, and that it is neither possible nor wise for them to prevent this from happening. China will have its own legitimate interests and aspirations, including to develop indigenously advanced technologies like infocomms and artificial intelligence. As a major stakeholder in the international system, China should be encouraged to play commensurate and constructive roles in supranational institutions like the IMF, World Bank, and WTO. If China cannot do so, it will create its own alternatives.

The US, being the preeminent power, has the most difficult adjustment to make. But however difficult the task, it is well worth the US forging a new understanding that will integrate Chinas aspirations within the current system of rules and norms. New international rules need to be made in many areas, including trade and intellectual property, cybersecurity and social media. China will expect a say in this process, because it sees the present rules as having been created in the past without its participation. This is a reasonable expectation.

The bottom line is that the US and China need to work together, and with other countries too, to bring the global system up to date, and to not upend the system. To succeed in this, each must understand the others point of view, and reconcile each others interests. Meanwhile, stresses and strains have built up between the two over multiple issues including cyber-espionage, 5G technology, freedom of navigation, human rights, and especially trade, where the two countries have reached an impasse.

If both sides treat their trade dispute purely on its own merits, I have no doubt their trade negotiators will be able to resolve it. But if either side uses trade rules to keep the other down, or one side comes to the conclusion that the other is trying to do this, then the dispute will not be resolved, and the consequences will be far graver than a loss of GDP. The broader bilateral relationship will be contaminated. Other areas will inevitably be affected, including investments, technology, and people-topeople relations. Every action taken by one side will be seen as a direct challenge to the other, and will elicit a counter-action. We will all be headed for a more divided and troubled world.

The US has lost faith in the WTO. It often acts unilaterally, imposing tariffs and trade sanctions outside WTO rules. It prefers negotiating bilateral deals one on one against smaller countries in tests of strength. It gives more weight to the US direct benefits in the disputes at hand, than to its broader interests in upholding the multilateral system. This has caused concern to many of the US friends and allies.

US-China relations will define the tenor of international relations for years to come. It is natural that the two powers will vie for power and influence, but competition should not inevitably lead to conflict. We hope the US and China find a constructive way forward, compet ing certainly, but at the same time cooperating on major issues of mutual interest.

On a long view, we cannot rule out any of these eventualities. But in our own generation, we must work together to maximise the chances that countries will have the wisdom and courage to make the right choices, opt for openness and integration, peace and cooperation, and so preserve and expand the progress which we have made together.

Reading material (II)

The US Commerce Department announced on May, 16, 2019 that it is adding Huawei and its 70 affiliates to its Entity List which will make it hard for them to buy parts from US suppliers. Following the announcement, foreign news outlets have reported that: 1) Google (GOOG) will not provide Play Store or Gmail apps to new Huawei smartphones; and 2) major semiconductor companies like Qualcomm (QCOM) or Intel (INTC) will not supply their parts and components to Huawei and its affiliates.

Early this year, the Justice Department unsealed criminal charges against Huawei, a top company executive and several subsidiaries, alleging the company stole trade secrets, misled banks about its business and violated U.S. sanctions on Iran. The sweeping indictments accused the company of using extreme efforts to steal trade secrets from American businesses including trying to take a piece of a robot from a T-Mobile lab. Huaweis chief financial officer, Meng Wanzhou, who is also the daughter of the companys founder, was arrested in Canada last December. The U.S. is seeking to extradite her.

US blocks sales of critical components to Huawei, the worlds biggest communication equipment maker and second-largest smartphone maker. Google and other US semiconductor names may stop providing Huawei smartphones with solutions and parts. Huawei bound to suffer market share decline. Following US' executive order and the cutoff of several suppliers including ARF, Huawei will be faced with a difficult choice: either find a way to manufacture a smartphone without US technology or exit the smartphone business entirely.

Reading material (III)

In the early days of the coronavirus pandemic, some friends in the West shrugged the virus off as a China problem until they found out that...

Apple limited global iPhone sales after Foxconn shut down its China factories, and Australian lobster prices plummeted from 90 Australian dollars a kilo to just 20, after their biggest buyer, China, closed virtually all its restaurants. Now, as the virus hits Western countries, some Chinese are gloating as a natural reflection on what some Western countries, especially their media had done against the country during the pandemic.

However, we need to bear in mind that there are millions of Chinese now living and working overseas, including 360,000 Chinese students studying in the United States alone. And China's export dropped 17 percent in February because of weaker demand from its coronavirus-hit trading partners.

In response to this pandemic, borders have been reinforced, commerce and trade have been halted, while xenophobia and politicization has risen. Will the pandemic eventually make economies more national and politics more nationalistic? Will it end globalization as we know it?

Analysis and discussion

3. MNCs from emerging markets are beginning to challenge the dominance of developed country MNCs. How might MNCs from developed countries such as North America, Europe and Japan response to these challenges?