This is the transcript of a talk Martin Jacques gave at a Forum organised by China Daily at the G20 in Osaka on 25 June 2019.

There is no point in building castles in the air. We must live in the here and now. I am sure the great majority of us wish we were not where we are. We would prefer that the era, beginning in the late 1970s, of globalisation and multilateralism, and that was characterised by relative stability and cooperation in the relationship between the US and China, was still in place. It is not. And it will not return for a very long time. The reason for the breakdown in that old order is profound, as is invariably the case with great historical shifts. We need to understand the causes.

The period between the late 1970s and 2016 was marked by three underlying features: a new phase of globalisation, the hegemony of neo-liberalism in the West, and a stable modus vivendi between China and the United States. Two things served to undermine this era, one was an event, the other a much longer-term process. The event was the Western financial crisis in 2007-8, the worst since the 1930s. It fatally wounded neo-liberalism in the West, led to many years of supine economic growth, a stagnation in living standards in most Western countries and a backlash against globalisation. The result was the undermining of the authority and credibility of Western governing elites and the governing institutions, together with the rise of anti-establishment populism. In the United States it created the conditions for the rise of Trump and a profound shift in US policy both domestically and internationally.

The longer-term process I referred to concerned the changing balance of power between China and the United States. In the late 1970s the Chinese economy was tiny compared with the US. Furthermore, the US believed that unless China became a western-style country, with a western-style political system, its modernisation would prove unsustainable. And likewise it never imagined that the Chinese economy would ever come to rival the size of the US economy. After the financial crisis the US slowly began to realise that on both counts it was profoundly mistaken: China was no longer a relatively insignificant junior partner, but now a peer competitor, and China’s political system was far more robust than it had assumed. This dawning realisation persuaded the US establishment that China’s rise had to be resisted, at a minimum slowed. While Trump was the initiator of this turn against China, it is important to recognise that it has widespread bipartisan support.

The Trump administration is seeking to reverse the norms of the previous era from the late 1970s until 2016: to weaken globalisation, undermine global trade by embracing protectionism, displace multilateralism in favour of US power, sideline the WTO, and wound China through the imposition of tariffs and the introduction of sanctions against its tech industries, most notably Huawei. It is a sobering reminder that history never travels indefinitely in one direction. In 1914 it was generally believed that the trend towards globalisation that had dominated the period after 1870 was irreversible: they were wrong. The world was soon to be ravaged by two world wars, protectionism, the division of the world into autarchic economic blocs, and the worst-ever economic crisis. The world can go backwards as well as forwards. Trump’s economic policy is a reversion to the nationalistic and isolationist thinking that informed US policy in the nineteenth century and in the twentieth century prior to the Second World War. It is now America’s response to its declining position in the world and the fear that its dominant position would be usurped by China.

How does the rest of the world respond? In the longer run the trend towards globalisation will be resumed. An increasingly globalised world means the growing interdependence of nations in a multitude of ways, from economic and cultural to environmental and the overarching challenge of climate change. These arguments and imperatives have not gone away even if they have now been displaced in some degree by the tide of nationalistic populism. At the heart of America’s shift is the question of China. How does China respond?

The shift in America’s position is not for the short-term. It is the beginning of a new era which seems likely to last for twenty years or more; bear in mind, in this context, that the previous era of globalisation lasted for rather more than three decades. China will have to learn to live in a world that is increasingly divided and in which the US seeks to isolate it. We will all be casualties of this new regime, including, of course, China and the US. In my view, though, the US will be a much bigger loser than China. The US will cut itself off from China, the world’s biggest, most dynamic and competitive market, and its competitiveness will suffer greatly as a consequence. China is the rising power, the US the declining power. The US’s retreat into autarchy and isolationalism will only serve to hasten its decline. At some point, still a long way in the future, it will come to recognise this fact, that it needs China, and a new kind of relationship with China based on equality.

China is patient. It is one of its great strengths. In contradistinction to the US, it thinks long-term. It understands now is not forever. China will be a very different and new kind of great power. Its rise has been remarkably peaceful in a way that the equivalent rise of the US, or indeed the UK, France, Germany and Japan, was not. They all fought many wars of expansion: China has not. It has a different way of thinking born of a very different history. China will find the way to resist America’s attempts to weaken and isolate it: we can be sure of that. China’s rise will continue. But at the same time it will, and should, keep its lines of communication with the US open, avoiding giving the US any reason or excuse to further poison their relationship. China’s caution is already manifest. It has responded to America’s protectionist moves against it, and its attempts to hobble Huawei, but very cautiously, seeking not to exacerbate the relationship and give the US cause to further up the ante. This is most important. Always avoid sacrificing the long-term for short-term gain. China, meanwhile, must intensify its efforts to build bridges and strengthen its relations with as many countries as possible. In this way it will seek to resist the US’s attempts to isolate it while at the same time demonstrating to the world its multilateral objectives and values.

A version of this talk also appeared in an article on the China Daily Global website.