Dialogue, collaboration vital to sustain global economy, says Harvard professor

Sino-US relations, their impact on practically every other nation on the planet, and the factors driving current US political thinking.

These were some of the issues touched upon when CEIBS Professor of Economics and Finance Xu Bin hosted CEIBS Dean Emeritus and Harvard Professor John Quelch for a fireside chat at the CEIBS Shanghai Campus on June 12.

Quelch began by outlining the economic and political situation in the United States. While technically not in recession, he said, the country remains gripped in an inflation crisis that may yet spill over into a housing crisis for much of America's lower-income groups.

"Whenever the economy is in bad shape, politicians always try to find some outside force to blame, and China is a regular target for this kind of behaviour. The weird thing is that, if it weren't for China, everything that US consumers buy would cost a lot more, (because of) the massive efficiency and productivity gains that China has brought to global manufacturing during the last 30 years," Quelch pointed out.

Fortunately, there are signs of dialogue recommencing, evidenced by recent visits by US business leaders to China and the upcoming visit by US Secretary of State Antony Blinken to Beijing. A thaw could be hugely beneficial to both nations in restoring clarity, confidence and a degree of predictability to the global economy, he added.

Ti Gong

Despite the political turmoil in the country and in its international relations, Quelch further highlighted how the US' propensity for innovation is the backbone of its economic powerbase with strong coordination between corporations, universities and the government.

"One thing that the US does really well is to integrate great national investment in basic research, with corporate investment in development and the university as the third pillar of this triangle," he noted.

Employment rates, flexibility of labor laws and general hiring practices are also sources of strength for the US, allowing for greater agility in key industrial sectors as the world realigns to the economic realities of a post-COVID world.

"The US currently enjoys low unemployment of around 3.7 percent, but almost 1 percent of the entire population basically dropped out of the workforce during the COVID period. This has cut unemployment but there are also some areas of tightness where it's harder to find the right people for the job. Ultimately, flexibility in the labor market is useful when companies or even whole sectors need to adapt to what's happening globally," Quelch suggested.

He also drew on the example of the recent Silicon Valley Bank bailout (and similar bailouts around that time) to highlight how the US can encounter alarmingly rapid economic disruption, but also stabilize the situation very quickly and use the situation to promote conditions for more sustainable growth.

"There is an entrepreneurial spirit in US banking that is unlike anywhere else in the world," Quelch remarked.

"Its community banks are crucial growth drivers for SMEs, based on their in-depth knowledge of their local market. Meanwhile, the likes of SVB pursue ambitious growth strategies that, sadly, did not work out in this case. However, the government will doubtless, through legislation, reinstate tighter regulations on liquidity, better stress testing for banks and manage their risk appetite."

In closing, Quelch reflected on the new normal of China-US relations against the changing global geopolitical landscape.