As I say, the effect has so far been less than dramatic. Since the financial crisis, which ended the prior period of “hyperglobalisation”, the ratio of goods trade to GDP has fluctuated between 41pc and 48pc, but it hasn’t fallen off a cliff.
“Near shoring”, “friend shoring” and “onshoring” of supply chains have become buzz terms for reduced dependence on China. Yet in many cases, imports have merely switched to low-wage economies that continue to have strong supply chain links to China, or so-called “connector” countries.
As with the Cold War, trade and investment between rival geopolitical blocs is decreasing compared with what’s happening within blocs, but thus far the degree of deglobalisation is small compared to what happened back then.
This would suggest that the process has much further to run, particularly if Europe more fully falls into line with the US on tariff action, as now seems likely.
Even so, root and branch decoupling would be difficult to achieve. As the IMF points out, such is the interconnected nature of global trade today that diversifying supply chains does not necessarily increase resilience, or lessen strategic dependence. Connector countries can be as dependent on Chinese supply chains as we are, even if they are more sympathetic to the West than China.
In a paper titled “China shock” published in 2016, the economists David Autor, David Dorn and Gordon Hanson found that the surge in US trade with China in the early part of the century had cost around two million US jobs in exposed industries and regions.
But this doesn’t mean protectionism offers solutions. In a recent update, the writers conclude that the Trump era tariff war “has not to date provided economic help to the US heartland: import tariffs on foreign goods neither raised nor lowered US employment in newly protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory US agricultural subsidies”.
The wider point is, I suppose, that by imposing tariffs, countries reduce competition and increase prices for their own consumers, making them worse off, and invite retaliatory action that can cost jobs via reduced exports.
In any case, protective measures seem to have been rather more effective politically than economically.
“Residents of regions more exposed to import tariffs became less likely to identify as Democrats, more likely to vote to reelect Donald Trump in 2020, and more likely to elect Republicans to Congress,” the paper concluded. “Foreign retaliatory tariffs only modestly weakened that support.”
So there we have it. The economics of Biden’s new front in the tariff war with China may or may not be suspect, but the politics are unarguable.
Protectionism is a vote winner, and probably necessary if politicians are to carry voters with them on challenging net zero targets. If all the benefits in terms of new industries and jobs are seen to go to China, then there’s very little prospect of achieving them.
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