(Yicai Global) March 27 – Even if unwelcome, globalization has become established fact and an unavoidable challenge, said Zhou Xiaochuan, governor of China's central bank, adding that it is a reality that must be faced.
Some countries take measures to protect their manufacturing sectors, fearing that globalization will harm domestic employment, Zhou said two days ago at a session of the Boao Forum for Asia. In economics, however, this violates the theory of resource allocation.
The new US administration is mulling a border adjustment tax, he added. Although its ultimate scheme is still unknown, its purpose is to encourage exports and curb imports. China's years of experience of reform and opening show allowing export-oriented manufacturers to freely import spare parts and technical products is necessary to encourage exports.
Import curbs will complicate efforts to develop competitive strengths in parts, prices, technologies and human resources, and will instead hurt exports, he advised.
For example, China's exports of audio-visual electronic products increased significantly in the early 1980s due to the adoption of lower import tariffs, which gave Chinese exporters more options in importing raw materials and technologies and gradually made import substitution possible. This was achieved based on market competition.
If the US considers imposing a value-added tax, China will welcome that, but it should not mull a border adjustment tax just because of the lack of a value-added tax, Zhou noted. A border adjustment tax is an adjustment to corporate tax, while a corporate tax is mainly levied on company profits, this is different from indirect taxes such as value-added taxes or sales taxes. The proposal to levy indirect taxes via a direct tax is very controversial.
Globalization will lead to structural unemployment, Zhou said. However, governments should not blame free trade for their unemployment problems. If labor lacks the corresponding skills or skills are outdated, adjusting and updating skills is necessary to globalization's challenges. This is an unavoidable requirement of effective resource allocation.