☉ 太和智库线上英文刊物《太和观察家》2024年10月刊第49期原创文章，转载请注明出处。
☉ This article is from the October issue of TI Observer (TIO), an online publication of Taihe Institute. Please indicate the source if you hope to share this article.
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正文1968字，读完约需8分钟。
Wordcount: 1968. The article will take about 8 minutes to read.
·中国气候变化事务特使
·China's Special Envoy for Climate Change
Introduction
The interconnected nature of today's global challenges calls for unity among nations. However, escalating geopolitical instability and deepening divisions are obstructing paths toward collaborative international efforts. To explore potential avenues for global cooperation amidst an increasingly complex and polarized international landscape, the Sub-Session on International Relations of the 8th Taihe Civilizations Forum (TCF) was convened on September 20, 2024 in Beijing. The following speech was given at the event and has been edited for clarity.The International Monetary Fund (IMF) updated its World Economic Outlook report on April 16 this year, raising its global economic growth forecast for 2024 to 3.2%, an increase of 0.1% from the January forecast. The report underscores the resilience of the global economy yet acknowledges prevailing uncertainties. IMF Managing Director Kristalina Georgieva highlighted that, while the world has averted a global recession, the economy has no optimistic markers, potentially heralding a "sluggish and disappointing decade."
The global economy is languishing amidst a complex mix of political, economic, financial, climate, and geopolitical challenges. In recent months, we have observed an intensifying fragmentation of the global economy.First, disruptions in key shipping routes have dealt a severe blow to global supply chains, resulting in substantial rises in logistics costs and commodity prices. The crisis in Ukraine has paralyzed commercial shipping activities in the Black Sea. At the same time, the conflict in Gaza has precipitated a crisis in the Red Sea, obstructing the most direct sea route between Asia and Europe. In response to a drought that reduced water levels, Panama Canal authorities were forced to impose restrictions on ship passage, severely hampering shipping operations between the Pacific and Atlantic oceans. Consequently, three of the world's five major supply chain hubs are now compromised by geopolitical conflicts and climate change. Maintaining the smooth flow of global shipping routes is now a critical prerequisite for restoring and sustaining global economic growth.Second, the Western strategy of "decoupling" and "de-risking" from China has severely disrupted Sino-US and Sino-European Union (EU) economic cooperation and exerted a detrimental impact globally. For years, the US, China, and the EU have been the top three powers leading global economic development. In 2023, the global GDP reached 104.79 trillion USD, with the combined GDP of the US, China, and the EU accounting for 58.7 trillion USD, or 56% of the total. Given the economic scale of these three powers, their interactions are pivotal in shaping global cooperation. The US policy of decoupling from China, initiated by the Trump administration, aimed at restricting imports from China by imposing high tariffs, thus reducing trade deficits, and encouraging the return of manufacturing to the US. The Biden administration implemented "decoupling" and "de-risking" policies with strategic considerations, especially targeting advanced technologies such as semiconductors. The US banned certain exports to China and promoted so-called "friendshoring" to cut off cooperation with China. In 2022, Sino-US trade reached a historic high, while China's trade with Europe also grew. However, in 2023, Sino-US trade fell by 11.6% compared to the previous year, and Sino-EU trade dropped by 1.9%. It is evident that while the West seeks to politicize and overstretch the concept of national security on trade and economic issues and approach "de-risking" from China, they are unlikely to hinder China's development. However, these actions will cause significant disruptions to global industrial chains and economic cooperation.Third, since WWII, economic sanctions have become a convenient instrument employed by major powers. While some sanctions were justified and legal, such as those endorsed by the United Nations, the majority were imposed unilaterally. In the past, sanctions targeted at a specific nation primarily affected that nation alone without broader implications for the global industrial chain. However, since the onset of the Ukraine crisis in February 2022, sanctions imposed on Russia have profoundly impacted the global industrial and supply chains and international trade systems, intensifying the fragmentation of the global economy. As one of the world's top ten economies, Russia boosted the integration of global trade following its accession to the World Trade Organization (WTO) in 2011. Now, under sanctions, Russia has been forced to establish alternative economic cooperation networks to sidestep these sanctions.Fourth, green barriers imposed by the US and EU are further fragmenting the global economy. Over the past two years, there has been a notable rise in green barriers, namely trade barriers targeting Chinese new energy products, particularly photovoltaic products, wind power equipment, and electric vehicles. In August 2022, the US enacted the Inflation Reduction Act (IRA), providing substantial subsidies to domestic new energy products, such as electric vehicles, to limit imports and protect local industries. In March 2023, the EU introduced the Net-Zero Industry Act (NZIA) and the Critical Raw Materials Act (CRMA), aiming to ensure that at least 40% of the products in eight key net-zero sectors, including photovoltaics, are manufactured within EU borders. More alarmingly, in April 2023, the European Parliament and the Council of the EU approved the EU's Carbon Border Adjustment Mechanism (CBAM), which is essentially a carbon tax law. Coming into effect in May 2023, the CBAM has been in a transitional phase and is set to enter in force in 2026. Under this carbon tax mechanism, the EU imposes carbon emission standards on certain imports, requiring the payment (or return) of tax or carbon emission allowances (CEAs) on carbon-intensive products entering (or leaving) the EU. The CBAM affects sectors such as steel, cement, aluminum, fertilizers, electricity, and hydrogen products. Consequently, all relevant products entering the EU will soon need carbon certificates. In the absence of WTO-sanctioned green standards, these EU-centric green barriers have gone far beyond the protection of local markets and industrial chains and are likely to cause widespread disruptions. This could severely hinder the production and adoption of new energy products essential for climate change mitigation over the next two to three decades.These four issues do not capture the full extent of the ongoing fragmentation of the global economy, yet they clearly reveal the huge risks involved. This fragmentation is not a result of natural market dynamics, but rather a consequence of deliberate political manipulation. Dani Rodrik, a professor at Harvard Kennedy School of Government, emphasized in early 2023 that enabling the national security establishments of the world's major powers to hijack the economic narrative would endanger global stability.A Chinese proverb states, "After clearing the clouds and mist, one sees the blue sky; by enduring the clouds, one eventually sees the bright moon." While we must acknowledge the risks of global economic fragmentation and actively work to curb its escalation, it is equally important to recognize that, despite setbacks, economic globalization remains robustly resilient and vibrant.First, after the establishment of the WTO in 1995, China's accession in 2001, and Russia's accession in 2011, the world finally saw the creation of a unified global market. This expansive market is robust against disruptions from individual nations, and countries of the Global South will not acquiesce to a reversion to a world divided into self-contained trading blocs.Second, the establishment of the WTO catalyzed an extensive global trade system, centered around the WTO and bolstered by a network of regional and bilateral trade arrangements. When it comes to prevailing geopolitical tensions, divergences among major powers and blocs might affect the efficiency of this system, but are unlikely to change its fundamental structure.Third, regional economic integration is playing an increasingly pivotal role in the revitalization of economic globalization. From the European Union to the African Union, and from the North American free trade area to the Caribbean free trade area, regional trade arrangements are proving to be key drivers of regional growth. A notable example is the Regional Comprehensive Economic Partnership (RCEP), which officially came into effect on January 1, 2022, with China and nine other nations among the first to approve it. Creating the largest free trade area in terms of population and market size, RCEP has injected substantial momentum into regional cooperation. Despite a broad downturn in global trade in 2023, the share of intermediate goods trade within the RCEP region increased to 66% of the total, demonstrating remarkable robustness. By around 2030, ASEAN's GDP is projected to hit approximately 6.6 trillion USD, positioning it as the fourth-largest economy worldwide, behind only the US, China, and the EU. In addition, Asia's share of global GDP is expected to rise from 39.1% in 2021 to between 45% and 50% in 2035.Fourth, global economic fragmentation is driving the regionalization of global value chains, which is unfolding across several dimensions: Firstly, global production networks are evolving into numerous regional and sub-regional production centers; secondly, there is an increasing trend toward localized production that relies on regional resources and commodities, although these regional value chains remain integrated and interconnected; thirdly, international investments, including those from outside these regions, remain critical drivers of these value chains; fourthly, while cross-regional foreign direct investments (FDIs) are declining, investments within regional markets are on the rise.Fifth, investments related to the 2030 Sustainable Development Goals (SDGs) and the carbon neutrality targets for the mid-21st century should be the focus of global investors and primary targets of international cooperation by 2050. Instituted by global leaders in 2015, the 2030 Agenda for Sustainable Development sets forth 17 SDGs and 169 associated targets. Yet, a mid-term review by the UN General Assembly last year disclosed that less than 15% of these goals and targets had been achieved, underscoring an urgent need to significantly ramp up related investments over the next six years. Also in 2015, world leaders created the Paris Agreement to address climate change. The 28th Conference of the Parties to the UN Framework Convention on Climate Change (COP28) in Dubai last year conducted the first-ever global stocktake and adopted the UAE Consensus, kick-starting a globally coordinated transition away from fossil fuels, which aims for carbon neutrality by the middle of this century. According to international forecasts, achieving these ambitions will require annual global investments of 4.3 trillion USD by 2030 and 5 trillion USD from 2031 to 2050. Although the sources of this funding remain uncertain, these investment targets are set to propel and stimulate economic growth globally.Last, current geopolitical conflicts are unlikely to disrupt the tripartite equilibrium among the US, China, and the EU within the global industrial chain. The US will maintain its upstream leadership in numerous global industrial chains and tighten its grip on competitive industries. Amidst the wave of manufacturing repatriation to the US, the US will decentralize production across different countries and regions, but mainly through "nearshoring" and "friendshoring" strategies. Europe, too, will remain an integral part of the global industrial network, with a heightened emphasis on high-end manufacturing and services sectors. China, as the world's foremost manufacturing giant, boasts the most comprehensive industrial chains and clusters. By honing this edge, China is steadily advancing into higher-end, more value-added segments. Despite significant pressures from geopolitical-induced industrial chain relocations and the growing prevalence of "nearshoring" and "friendshoring," China remains the world's largest manufacturer and a great magnet for international investors.Driven by the economic powerhouses of China, the US, and the EU, industrial chain specialization in key regions - East Asia, North America, and Central and Western Europe - is set to expand, creating new opportunities for regional economic growth. In East Asia, the traditional industries of China, Japan, and the Republic of Korea (ROK) are poised to extend further into Southeast and South Asia, fostering regional economic integration. In North America, several Central American and Caribbean nations, represented by Mexico, are developing new export-oriented industrial clusters. In Europe, influenced by the crisis in Ukraine, investment flows are reversing from their traditional west-to-east orientation to east-to-west, with further expansion toward the Mediterranean coast. Amidst these developments, Europe's economic resilience remains strong.While we remain confident in the robustness of economic globalization, we must also acknowledge the persisting and widening gap between the Global North and South. The world must realize the importance of and enhance support for developing countries, especially those in Africa, small island nations, and least developed countries. We must strive to steer the global economy toward greater fairness, justice, and equality, gradually achieving shared development for all.The above contents only represent the views of the authors, and do not necessarily represent the views or positions of Taihe Institute.太和智库线上英文刊物《太和观察家》（TI Observer）致力于促进中外沟通交流，弥合“理解鸿沟”。
TI Observer (TIO) is an online monthly English publication produced by Taihe Institute. TIO is dedicated to promoting transnational interaction and mutual understanding, thus bridging the gap of misunderstanding and bringing China and the world closer to each other.
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