This summary article is an extension of one of the points we made in a previous note on the idea that the Sino-US trade spat will likely lead to a more open China (obviously with positive consequences for the world) rather than a more protectionist US (which is what most analysts have been writing and policy makers been fretting about).

In this article, we conduct a back-of-the-envelope calculation on the potential increase in China’s imports, if Beijing agrees to opening up its markets to the world.

1. We estimate, using very conservative assumptions, that China’s total non-intermediate goods imports could easily rise by USD150 billion every year for the next 5-6 years. Relative to the baseline trajectory of no change in China’s import barriers (tariff and non-tariff), this would amount to over USD2.3 trillion of cumulative increases in imports over the next 5 years. This figure is more than double the reported offer by Beijing of an increase of USD1.0 trillion in imports of American-made goods over the next half decade, suggesting that Beijing’s offer is entirely realistic and achievable.

3. While the above is a guesstimate, the ‘sign’ of the effects of a more open China is clearly positive for global trade, as a more open China would in turn help keep China’s export markets open. A competitive China will likely mean a continued increase in Chinese exports to the rest of the world, with a probable rise in the technological content in these exports. This is the most compelling argument why Beijing would agree to opening up its markets to foreign imports. Another justification for a more open China is consumer welfare: more variety and higher quality imports at reasonable prices should enhance the quality of life of ordinary Chinese. This familiar argument that has been routinely applied to the US is just as applicable to China, even if most pundits have avoided doing so. Whether China will actually run a current account deficit will be a function of China’s overall savings position and in particular its fiscal position.
4. There is a lot of talk of ‘de-globalisation.’ However, we find the conversation so far on global trade rather unsatisfactory. Instead of the model of globalisation witnessed in the past 20 years running in reverse – which we presume is what many analysts and pundits expect – we have in mind a ‘reformation’ of globalisation, with ‘Globalisation 2.0’ having positive implications for the long-term sustainability of a globalised world economy.