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The separation between China and the West will
probably never become as complete as the bipolar
world of the Cold War. Chinese will likely continue
to sip Starbucks lattes and wear Nike sneakers, and
Americans will still find Chinese-made goods in
their local Walmart. But as China asserts its growing
clout and the U.S. and Europe defend their compa-
nies, technology, and institutions, the chasm will
widen. Countries that have their own issues with
the West, such as Russia, will get sucked more and
more into China’s orbit. Others, wary of China’s
escalating power, such as India or Japan, could
move closer to the U.S.
A split would have terrible consequences for the
global economy. Companies in both blocs would find
access to key markets restricted, hindering profits,
productivity, and job creation. Cut off from much-
needed technology and markets, Beijing could
THE BOTTOM LINE Xi Jinping’s vision of a world dominated by
Chinese technologies and brands is one that threatens to split the
global economy into two distinct blocs.struggle to raise the incomes of its 1.4 billion people,
still poor and rapidly aging. The odds of a military
confrontation between China and the West could
increase sharply.
This bipolar future isn’t inevitable. Perhaps
Beijing will realize that it’s better off supporting
the current order than undercutting it. After all,
China’s integration with the rest of the world has
been the key driver of its economic success since
the 1980s. The U.S. and its allies may step back from
protectionism and continue to work with Beijing to
meld China into the existing system. But the trajec-
tory China and the West are hurtling down doesn’t
bode well. If a new wall rises across the world,
everybody loses. —Michael SchumanMexico’s Irresistible
$12.43-an-Hour Pay Gap
○ Despite the threat of Nafta’s demise, a host of companies are sticking with relocation plans
It wasn’t supposed to be like this, but the companies
that specialize in helping U.S. businesses set up pro-
duction in Mexico say they’re having a solid year.
Tecma Group says this is the busiest it’s been
in three decades. The relocation specialist, which
has offices on both sides of the U.S.-Mexico border,
helped a maker of cleaning equipment and a pack-
aging company move south in the past few weeks.
Chicago-based México Consulting Associates has
three new prospects interested in the country. Keith
Patridge, president and chief executive officer of
McAllen Economic Development Corp., expects at
least 12 companies to set up shop in Reynosa this
year alone. And Tacna Services Inc. has assisted two
businesses that recently relocated to Baja California.
While President Donald Trump’s vow to scrap or
revamp the North American Free Trade Agreement
was expected to scare off companies considering
moving to Mexico, many are sticking with their
plans. Lots of factors go into the decisions, but
these companies have made a simple calculation:
Cheap labor in Mexico—as much as $20,000 a year
less per worker compared with the U.S.—is enough
to offset the costs of any tariff increase resulting
from Nafta’s demise.
“If they just wiped out Nafta and went back to
normal trade tariffs, I think that’s manageable,”
says Ross Baldwin, CEO of Tacna, which is based
in San Diego. “Life would continue on, because the
labor rate is so dramatically different.”
The latest rounds of talks on the future of the
23-year-old trade treaty wrapped up on Oct. 17, with
Mexico and Canada rejecting controversial U.S.
demands on dairy, automotive content, dispute
panels, and government procurement. Another
bone of contention has been the Trump adminis-
tration’s proposal that the revamped pact include
a so-called sunset clause, causing it to expire
every five years unless all three countries agree it
should be extended. Negotiations will resume in
November, but the ministers agreed to put off any
resolution of that question until next year.
Some economists predict a less rosy future than
do the relocation firms, which have reason to put
a gloss on their prospects. According to a study by
ImpactEcon, a consulting firm based in Boulder,
Colo., the end of Nafta would cause the loss of more
than 250,000 jobs in the U.S. and almost 1 million
in Mexico, whose economy has been transformed
by the pact. Mexico’s trade with the U.S. totaled○ Direct investment
by U.S. companies in
Mexico almost doubled
in the first half of 2017$3b
ECONOMICS Bloomberg Businessweek October 30, 2017