In any case, without a political or diplomatic breakthrough, the likely scenario involves global trade becoming segmented into two categories – high-tech and low-tech goods – with some grey areas for“smuggling” but an increasing separation of the two regions. With the rise of US de-risking, trade in high-tech goods with China could be limited.

History has seen similar segregations. Drugs and weapons were once freely traded but became strictly regulated over time. Similarly, labor movement between countries, once freely allowed, is now tightly controlled. This shift occurred as the world recognized the dangers of the free movement of drugs, weapons or labor.

There's a growing perception of the systemic dangers of free trade in technology with China, as China is viewed as a threat in the West, irrespective of the accuracy of this perception. Unless this perception changes, the trend toward division will deepen, steering global trade in a new direction from the past three decades.

The resolution won't be easy or swift, and the eventual victor remains uncertain. With China having installed 3.38 million of the world's 4 million 5G base stations, its market penetration could increase, challenging American technology to replace inexpensive and reliable Chinese tech in developing countries.

However, China faces challenges not only on the foreign front. As The Economist argued, addressing the issue of high-tech foreign penetration might not solve the inherent problem of poor domestic demand in China.

China's response is a strategy built around what officials call“new productive forces .” This eschews the conventional path of a big consumer stimulus to reflate the economy.... Instead Xi wants state power to accelerate advanced manufacturing industries, which will in turn create high-productivity jobs, make China self-sufficient and secure it against American aggression. China will leapfrog steel and skyscrapers to a golden era of mass production of electric cars, batteries, biomanufacturing and the drone-based“low-altitude economy.”

Xi's ultimate aim is to invert the balance of power in the global economy. Not only will China
escape dependence on Western technology . It also will control much of the key intellectual property in new industries – and charge rents accordingly. Multinationals will come to China to learn, not to teach.

However, Xi's plan is fundamentally misguided. One flaw is that it neglects consumers. Although their spending dwarfs property and the new productive forces, it accounts for just 37% of
GDP, much lower than global norms. To restore confidence amid the property slump and thereby boost consumer spending requires stimulus. To induce consumers to save less requires better social security and health care, and reforms that open up public services to all urban migrants.

Consumer confidence remains low post-Covid. People are not investing or spending; they are saving. Several factors contribute to this trend.

• First, the long anti-corruption campaign has failed to yield new open and transparent business regulations that would legally protect private property, an economic cornerstone. In China, asset ownership remains at the discretion of political power, which can deem assets illegitimate or illegal through secretive party procedures and confiscate them.
• Second, the extended Covid lockdowns, harsh in implementation and longer than the rest of the world's, stripped many Chinese citizens of a sense of future security. Businesses closed, and people went months without income or salary or without state compensation, surviving only if they had savings. The possibility of new lockdowns does not seem impossible.
• Third, the absence of a welfare state means individuals must save for education, healthcare, and retirement. There is neither extensive private insurance nor a state system to provide them. With tax collection at half the rate seen in European countries that support welfare states, China would need to increase taxes on its middle class – potentially causing discontent or demands for political representation in exchange.
• Finally, aggressive rhetoric in Chinese media about war preparation and foreign threats prompts ordinary people, unable to plan for a peaceful future, to save rather than spend or invest.

These challenges will pose significant obstacles for China, necessitating increased exports to compensate for domestic demand shortfall. However, increased exports and surpluses may heighten friction with more countries, potentially isolating Beijing internationally.

According to World Bank officials, China already maintains a trade surplus in goods with 179 countries. With the US, a major global net importer, aiming to reverse this trend, China's ambition to become a massive net exporter will face significant hurdles.

This represents a major U-turn for America, which has championed globalization and delocalization for decades. Yellen reportedly has lamented that importing Chinese goods has helped control inflation but at the cost of US blue-collar jobs. Yet this outcome was not simply an oversight or a mistake. Globalization could have been sustainable had China opened its markets, as seemed possible with its WTO entry in December 2001.

Such an opening then would have altered the global economic landscape significantly, potentially creating a global class of super-rich individuals while widening the social divide between the haves and have-nots. Comprehensive income redistribution policies would have been necessary then to address potential worldwide social unrest. However, the geopolitical clash between China and the US might have been avoided.

Historians will debate why China didn't open its market. Here briefly I summarize what I've been writing for years.

Ultimately, China's reluctance to open its market stemmed from a complex mix – the party's desire to maintain power, hubris and disillusionment about America's political model. Many Chinese pundits, once enthusiastic about America, grew skeptical of the American model following US failures in Iraq and Afghanistan and the 2008 financial crisis.

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Presently, Russia's troubles in Ukraine, and China's own troubles might begin to change some perceptions in Beijing. Then, the path to recover America's image could also be an element in the present situation.

This essay first appeared on Settimana News and is republished with permission. The original article can be read here .