Mexico, China, the United States, and a World of Possibilities

Interview with Eugenio Anguiano Roch, Affiliate Professor at the International Studies Division of the Center for Research and Teaching in Economics (CIDE)

By: Guillermo Máynez Gil

Mexico, China, the United States, and a World of Possibilities
With his extensive academic experience and the years he spent in Asia—particularly China to which he was ambassador on two different occasions (1972-1976 and 1982-1987)—Eugenio Anguiano offers a detailed diagnosis of the current international situation, of the dispute between powers for world supremacy, and of the need to support multilateral institutions so we can face—in a coordinated manner—the enormous challenges posed by the pandemic, and its economic and social consequences.

How different is the economic aftermath of the COVID-19 pandemic compared to other crises caused by economic cycles or financial bubbles?

The World Bank recently published the history of global recessions from 1870 to date, which sum up to 14. According to their projections, the one caused by the COVID-19 pandemic will be the fourth worst one after the 1914 recession (the worst one), the 1930-32 recession (which was long), and the post WWII recession. The last crisis we had of this magnitude was 75 years ago, thus making it worse than the 2008‑2009 financial recession. It is also the first pandemic‑caused recession in 150 years.

 

 

What do you think are the main strengths and weaknesses of the world economy in this extraordinary situation?

Three fundamental elements are observed in the prevailing economic model, namely, production and financial globalization, international trade very close to free trade, and monetary and fiscal policies that seek stability rather than growth. The capacity to deal with the economic consequences of the pandemic under these precepts is so limited that many countries, including the most economically powerful, seek to reverse them. Emerging actions underway include extreme countercyclical spending that will exceed the accepted limits of fiscal deficits, fragmentation of globality in regional markets, and a rebound in protectionist policies.

 

EUGENIO ANGUIANO ROCH AND MAO ZEDONG DURING PRESIDENT LUIS ECHEVERRIA'S FIRST STATE VISIT (1973)

 

The lack of a globally coordinated response in the face of the health crisis and its aftermath is surprising. Whose responsibility is it to lead these efforts?

The ineptitude shown by multilateral institutions in the face of the crisis is more than clear. However, we mustn’t lose sight of the fact that before the pandemic, many efforts to reform them had already failed. I believe that behind these failed endeavors are both the lack of vision and the exercise of extreme power of several of the 193 countries represented in the United Nations: the five permanent members of the Security Council—to begin with—and the rest of the G20, particularly in everything to do with the economic realm. It is no surprise that many of the proposals to address climate change challenges, pandemics, and other threats of the sort, run into disinterest or open resistance from key nations. However, in a situation like this one, we need to come up with a coordinated response for economic recovery. In general, multilateral economic organizations haven’t made progress because several of their members don’t respect the agreements, as frequently happens within the United Nations General Assembly.

 

 

Among multilateral organizations, the World Trade Organization has been in a particularly complex situation. Is there a place for this institution in the post-COVID era?

WTO’s outlook after the pandemic looks uncertain and complex, among other things because several countries are incorporating protectionist measures to alleviate the crisis and there is a growing trend towards the formation of regional trade blocs. The unfinished Doha Round negotiations clearly display many of WTO’s limitations. With this scenario, it seems difficult it can become a key factor in the global economic recovery. On top of that, there’s a—hopefully—temporary phenomenon, namely, the Trump administration’s position against that body. Whether this government ends next year, or in another four, traces of this isolationist attitude will remain. Despite the adverse environment, I believe the WTO should resume the Doha Round, perhaps under a different name, in order to consolidate its progress and find alternatives to overcome obstacles. Otherwise, I don’t see how I it will survive.

 

 

For some authors, hostility towards multilateral organizations, the withdrawal from the Paris Agreement and the Trans-Pacific Partnership show the loss of world leadership from the United States. Do you agree with this? How can the pandemic and the global recession affect this process?

The United States has indeed left many leadership spaces. The most serious problem would be for this attitude to become a constant. The pandemic has accentuated this retraction, despite the fact that the US economy holds many instruments that would allow it to maintain its global leadership. To name just two: its currency and the ability of its private sector to overcome crises, largely thanks to countercyclical policies. In fact, although the recession is strong and unemployment remains high, there are already signs of a timid recovery that could limit the effects of the 2020 recession. Those are the light and dark parts of the US position.

 

The withdrawal from the aforementioned agreements is not part of a strategically defined policy, nor does it necessarily have the majority support of his party or his cabinet. Rather, they are individual decisions of a president bent on dismantling achievements of the previous administration. The TPP is an emblematic example. Towards the end of his administration, President Barack Obama tried to reposition his country in Southeast Asia and in the APEC region, by building a new generation free trade space. With its withdrawal from the TPP, the North American power abandoned these efforts and gave way for China’s advance in a key region.

 

 

For the first time in several decades China faces a substantial reduction in its growth rate. How will the Chinese geopolitical picture change in the post‑COVID era?

Most projections indicate that the growth of the Chinese economy will be around 1% this year. If confirmed, it would be a catastrophe, the biggest since they opened to the world economy. The most immediate references are the economic crises after the events of Tiananmen Square and the Asian financial crisis of 1997, in both episodes GDP grew between 3 and 4 percent. Growth as low as the one looming would negatively affect many ongoing projects, but would not necessarily lead to a reduction in current tensions in the South Sea, Hong Kong or Taiwan: strategic spaces in the Xi Jinping project. The power accumulated by this leader in the last 8 years is reminiscent to the time of Mao, but in a different economic context. I don’t see the Xi government giving up on those geopolitical projects. At best, international convictions and sanctions could lead to splits among the dominant factions of the Communist Party. Given that the opposition outside the party has a marginal weight, what is relevant here is what happens within the Central Committee, the Political Bureau and its Permanent Committee. I’m not ruling out that the recessive effect of the pandemic will lead certain groups to impose limits on Xi and his project of global hegemony. Although difficult, they may impose limits on their indefinite re-election claims. We will begin to see the consequences in a year to a year and a half.

 

 

How important is it for world trade that the pandemic originated in China? How will this affect the future performance of global value chains?

Not very, despite what President Trump says. His threats to make China pay for the pandemic are rhetorical. It’s been shown that China took early action, hence Trump’s wrath is now directed at the World Health Organization. Regarding value chains, where the disease originated is not very important, what is important is the shift from globalization to regionalisms. China is part of several regional agreements and its closest integration is not with the United States, but with the countries of Central Asia and secondly with Europe.

 

 

Amidst the health crisis, many countries faced serious difficulties in sourcing essential medical supplies. Currently, 95% of precursors to produce medicines in the world comes from China. Do you think that countries should consider the convenience of ensuring local production in the case of strategic industries such as pharmaceuticals and food?

This question makes me thing of the following. It seems that the enormous financial and technological effort China made in the early eighties to increase its production of medical supplies and pharmaceutical precursors was overlooked by most world leaders.

 

During my second stay as ambassador (1982-1987), I visited some factories that, even with old machinery, were doing a commendable job. By 1983, around Beijing, there were two factories producing huge amounts of precursors for antibiotics. China is now a power in this sector. This is where the recommendation for countries to seek pharmaceutical self-sufficiency and, as the question adds, food self-sufficiency, comes from. Regarding the first part, I think that Mexico should have promoted, if not self-sufficiency, then the development and production of drugs in the national territory. We lost that opportunity by opting for a policy that privileges patents and intellectual property. China did it too, but it made sure to develop its productive capacities beforehand. As for food, I don’t think that the search for self-sufficiency or, at least, a national majority supply, is necessary. China doesn’t do it, and that was reflected in the commodity boom from a few years ago. Global demand for agricultural products, such as soybeans and others, expanded considerably when China realized that it could not produce everything. In its capacity of world factory, it assures a strategic position. In the case of Mexico, internal agriculture must undoubtedly be strengthened, but not necessarily self-sufficiency or, as some call it, food sovereignty.

 

 

What impacts are looming in international trade flows? Will the trend towards the segmentation and automation of production processes and joint manufacturing such as that currently prevailing in North America be reinforced?

In the short term, at least, the trade war waged by the US government against China will not yield the expected results. The tariffs applied to Chinese products and the corresponding commercial retaliation of the Asian giant indeed produced trade diversion. The US trade deficit with China dropped from $ 420 billion in 2018 to $ 346 billion in 2019, but it still represents a very significant part of the US global deficit, 41% compared to 48% previously. Instead, Mexico displaced China as the main trading partner for the first time since 2003. In 2019, total trade between the United States and Mexico amounted to $ 614 billion compared to $ 559 billion for total trade between the two world powers. In any case, the trend towards automation and production integration between the United States and Mexico will continue and will be reinforced by this trend towards regionalization.

 

 

How do you envision the US-China relationship in the face of a possible change in administration in the US?

If President Trump were to lose re-election, as most polls now indicate, there would surely be a less tense—in rhetoric at least—bilateral relationship. Perhaps it will transition to a more restrained and professional handling of foreign policy towards China, but the dispute for world supremacy is a reality that transcends the Trump administration and it will continue to set the tone for the bilateral relationship. A very pertinent article in Orville Shell’s Foreign Policy notes that the strategy deployed by the United States towards China was intended to direct it towards a market economy, under the assumption that this advance and integration with the global economy, plus the emergence of a large middle class, would lead to a more liberal policy and an eventual connecting of interests. Insofar as this didn’t occur, both Republicans and Democrats began to consider the need for gradual disconnecting. Trump’s actions, however, gave way to an abrupt and disorderly breakout, which is very dangerous, and will not necessarily undergo significant change under a new administration. The style will change, but not the substance.

 

 

The pandemic put on hold global mobilizations related to climate change and identity struggles. How are these movements affected by the virus and the global recession?

The current situation makes them stronger. This is clearly seen in the United States, where Trump’s policies and rhetoric has been increasingly rejected by large sectors of the population. The same is true of the demands for a green economy and for a fairer distribution of wealth and opportunities, regardless of race. This is also happening in other developed countries, where there has been greater awareness of the need for concrete measures and mandatory enforcement to protect the environment. Except for the US government, the rest are listening; there is a change in mindset even in the US private sector.

 

 

Lastly, Mexico has just been elected as a member, although not permanently, of the United Nations Security Council. What should the country’s agenda be in this new assignment?

This appointment is a great opportunity for our country to promote resolutions in the Security Council, make the voice of a medium-developed country heard, and promote causes such as nuclear disarmament or climate change. Actively promote concerted actions in favor of the peaceful resolution of conflicts that endanger world peace, such as the Israeli claims to annex the West Bank settlements. Have our own agenda that even leads us to disagree with the United States on specific points. The biggest risk I see is taking a submissive position.