China-US tensions: how global trade began splitting into two blocs

Speaker Nancy Pelosi’s visit to Taiwan has elicited a strong response from China: three days of simulated attack on Taiwan with further drills announced, plus a withdrawal from critical ongoing conversations with the US on climate change and the military.

Western manufacturing firms either outsourced to Chinese firms or set up operations themselves. They benefited from cheaper production and – for those outsourcing – not having to own factories or deal with labour issues. In turn, the Chinese gained tremendous manufacturing capability. The US has become increasingly concerned about China’s faster economic growth and the fact that the US buys much more from its rival than the other way around. This drove the big decline in US domestic manufacturing that famously helped Donald Trump to win the US presidency.Equally, the rivalry has extended to other areas as China has sought a leading role on the world stage. Both nations are nuclear powers, although the Chinese military has only 350 nuclear warheads to America’s 5,500.

When President Biden took office in 2021, he began highlighting long-simmering complaints about human rights issues in Xinjiang and the threat to Taiwan . He also imposed sanctions on certain Chinese companies of a kind not been seen since the Mao-era trade embargo.Biden also banned goods from China’s Xinjiang region on the grounds of forced labour in 2022, affecting the purchasing of goods by many western companies.

Two global blocs are increasingly emerging, with US treasury secretary Janet Yellen in April calling for “friend-shoring” with trusted partners, dividing countries into friends or foes. The Biden administration announced at the June G7 meeting a new “Partnership for Global Infrastructure and Investment”. Aiming to mobilise US$600 billion in investments over five years, this is an overture to various developing countries already being courted by China under its similar Belt and Road Initiative.

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