Cross-Border Commerce

Transcript

[Sandro Galea]
Welcome to Ideas Matter, a podcast hosted by WashU. I’m Sandro Galea, vice provost of interdisciplinary initiatives and dean of the School of Public Health at WashU. We live in a globalized world. The flow of goods, services, and information crosses borders and connects us like never before. At the same time, this is a time of uncertainty. Geopolitical tensions like the U.S.-China rivalry and the rise of new technologies like AI have raised challenging questions. How can we shape a sustainable globalization in a context of challenge and change? How can we establish a sound global economy amid disruption? What does the U.S.-China relationship mean for the future of global markets and global stability? Joining me today to help answer these and other questions is Professor Liz Liu. Professor Liu is an assistant professor in the McDonough School of Business and a faculty affiliate in the Department of Government at Georgetown University. She’s also the author of the award-winning book, From Click to Boom: The Political Economy of E-Commerce in China. I am delighted to be speaking with her today. Dr. Liu, welcome.

[Lizhi (Liz) Liu]
Thank you very much. It’s my great pleasure to be on this podcast.

[Sandro Galea]
So let’s start with you and your background. So how did you come to be doing the work you’re doing?

[Liz Liu]
Okay, I was first trained as a political scientist, using statistical methods to understand the world. But I guess I was a little bit rebellious in my 20s. I mean, who wasn’t, right? I wished to study something new rather than just following the most established research path. So during my PhD, I heard a story about how farmers in China started to sell products online and poor villages changed completely because of e-commerce.
I became fascinated by this e-commerce boom. But at the at least in the U.S, almost all the research on China’s was all about social media and censorship. But I saw something different. I think the internet was not just about social media or speech. It was also about economic rights and opportunity. So I studied e-commerce and Chinese tech companies. At the time, the choice was a little bit unconventional.

But in hindsight, my political science training actually helped me to think deeper about these questions, especially how technology reshapes economic power, economic competitions, and how platforms changes trade and how states responded to all of the transformation. So in a way, this kind of curiosity pulled me into becoming an interdisciplinary scholar. And that path eventually led to somewhere I didn’t initially expect, teaching at a business school and studying how internet, technology, trade, and politics intersect in the global economy.

[Sandro Galea]
Now, it’s hard to think of a more interesting time to be doing what you’re doing. So we’re recording this in 2026, right, at the tail of the pandemic, rising geopolitical tensions, and all of this has reshaped trade patterns. So talk to us about these. Talk to us about big picture trends that have been shaping the global economy to bring us where we are today.

[Liz Liu]
Yes, so one pattern I found especially interesting is the growing gap between perception and reality when it comes to globalization. We often hear headlines declaring the end of globalization, or at least warnings about deglobalization. But if you look at the data, the picture is quite different. For example, the DHL Global Connectedness Index actually use shipment and transportation data to track trade, capital information, and people. At the aggregate level, there was actually no clear sign of globalization retreating. The index reached a record high in 2022 and has remained close to that ever since. In fact, last year goods traded actually grew faster than in any year since 2017.

There was also little evidence that regionalization is replacing globalization because if we look at how long or the distance of trade of goods a year, we actually see that the distance was getting quite stable, at least, or even longer. But I think perceptions do matter in the sense that it changes not necessarily the volume of global trade, but actually changes the picture or like how globalization operates. The Several trends I actually see right now is that first geopolitical distance is now playing a bigger role. So countries care about who they’re trading with. So basically it used to be the case that distance matter, but now geopolitical distance, meaning that how close the two countries are becomes more important.

And second, obviously we see there’s a decline in direct trade between U.S. and China due to geopolitical risks. However, a lot of these kind of a trade still continues. They just get rerouted through third countries, which some people would call a kind of a bystander effect. So some of the countries that benefit from this kind of a decline trade between U.S and China are Southeast Asian countries or Mexico, right? Like all of these third countries now becomes more important in global trade.

And also another trend we see is that globalization actually still continues because globalization becomes just more digital. If you define globalization as including digital technology, exchange of digital services and data across waters, actually globalization has still grown very fast. So I think in short, I see that globalization is still continuing, but it is being reconfigured with more countries beyond the U.S and China participating in the global production lines.

[Sandro Galea]
So you do research on three topics which I think are all really interesting and are driving world events right now. Intersection of trade, technology, and China. So about these topics, tell us what you think is most interesting and what are some elements perhaps that do not get discussed enough in the public conversation.

[Liz Liu]
Yeah. I think there are two trends in globalization that are super interesting. One is the reconfiguration of global supply chain. And the other is what I mentioned, the rise of digital trade or like a digital globalization. And on the first trend, the reconfiguration of supply chain, I actually found something that has been understudied, which is that many stories we hear right now is that supply chain is moving outside of China due to rising labor costs, tariffs, and geopolitical tensions.

But actually, if you look at the data, China’s exports still maintain a very high level. But I think a understudied trend that kind of reconciled those two facts, one is that supply chain is partially leaving China, and second, China still continued to export, is that China actually is exporting a different set of products that wasn’t there before, which is the export of capital goods or export of industrial robots. That is not just an intermediary product, but actually a machine that can transform the long run cost of a firm and how manufacturing is organized.

So in recent years, what is very interesting is that China transitioned from a net importer of industrial robots to a net exporter of industrial robots. And a lot of these export destination of Chinese industrial robots was actually to emerging manufacturing hubs where supply chain were relocated, such as Southeast Asia or Mexico, especially Southeast Asia. And the interesting figure of China’s industrial robots is that they’re also very different from the industrial robots traditionally made by Japan and Germany and USA, these traditional frontier manufacturers. They’re not necessarily that good. We call them good enough automation, meaning that they’re very cost effective in terms of functions and they’re not as good as the frontier producers, but they’re good enough.
So they’re very attractive to Southeast Asian countries. And the second trend, which is also related to my research, is that I think e-commerce has become a very interesting part about digital globalization that we mentioned, which is really the future of globalization. So cross-border e-commerce right now is actually a $2.5 trillion market, so doubling its size three years ago. So this actually matters because e-commerce is not just a new market channel, but it actually changes the form. Because traditionally only the large and the very productive firms can export, because exporting involves very high transaction costs in global trade. You will need to be a big firm to solve all of the problems, including trust.

But because right now we have the rise of digital platforms, so a lot of these platforms like Amazon or Chinese platforms, they’re lowering the barriers to trade. So right now, even small businesses and individuals can sell globally. Right now, we’re witnessing this very big change from superstar firms, very big firms able to do exports, transition to a new period that we see the rise of micro multinationals, meaning individuals and very small businesses. So I think that’s two very interesting change that’s also related to my research.

[Sandro Galea]
Well, I’m glad you mentioned the robots because I was going to if you didn’t. Let me ask you about tariffs for a second. So currently, as you and I are speaking in the U.S, we’re in the middle of tremendous discussion about tariffs, use of tariffs as a geopolitical tool to try to force a recalibration of global trade. So to what extent does China use its own economic policies as geopolitical leverage and how do exports figure into this?

[Liz Liu]
Mm-hmm. Yeah, so I think China use a bunch of economic policies, but mostly falls into like two categories. One is a set of policies to reduce the cost of export. For example, China actually had export tax rebates that basically allows exporters in China to reclaim part or all of their value added tax, which is the tax they paid on the goods sold abroad. So essentially there’s a tax rebate to reduce the cost of exporters.

But of course in 2026, right now China was considering cutting or canceling some of that in certain sectors. But the second is also encouraged, as I said, the adoption of industrial robots in Chinese factories domestically. Because in this way, you can also reduce the production costs domestically. That would also help the firms to offset some of the tariff pressure.

The second set of policies, I think, is really Chinese governments are encouraging its companies to go overseas or go global. This is something that I think people probably did not realize because the Chinese government basically sees this as, well, due to geopolitical tensions and tariffs, it is inevitable that some of the supply chains will be relocated outside of China. So instead of you know, waiting for this to happen, why don’t we just like do this more preemptively? So certain Chinese local governments actually even started to set up industrial parks in Southeast Asia. And they even organized tours for their local entrepreneurs to visit Southeast Asia and help them to relocate factories from China to those countries. So in other words, the combination of policies was how China was solving the problem of tariff. So one is reduce the domestic production cost, and second is just, relocate part of the supply chain outside of China.

[Sandro Galea]
When you look at the global economy and you look at global trade and global commerce, so to what extent is China driving global economic trends and to what extent is it actually shaped by them?

[Liz Liu]
I think it’s actually a co-evolution of that. So essentially, China is shaping global economic trends. And at the same time, it was influenced by it. In fact, there are different waves about how this kind of a change has happened. A recent economist article actually said this basically described how China’s globalization effort place in three waves. So the first wave actually happened in late 1990 to 2000s. It was mainly driven by China’s role as an exporter of low cost manufactured goods. Because at the time, the Chinese products actually had a bad reputation. Made in China means like low quality, very cheap and everything. And a lot of these exports actually had no brand, right? They don’t have any brand recognition. So that’s the first wave, very initial wave.
The second wave was actually going global 2.0. It was actually in the mid 2010s when a lot of Chinese companies, especially conglomerates like Anbang or H&N Group, they started to make lot of major overseas acquisitions. So they actually bought a lot of landmarks in the U.S as well: Waldorf Astoria in New York and also like AMC. So they invested a lot in real estate, hotels, and foreign assets. But that phase was very short-lived because Western governments started to get very cautious and stopped, and China also was worried about capital flight. So that wave also stopped. So right now, we’re actually seeing the third phase, which is, the article calls, Globalization 3.0. So this happened starting from the late 2010s. And especially pandemic facilitated that kind of globalization effort, which after pandemic, Chinese economy was not doing very well because of the geopolitical tensions. So a lot of companies were actually trying to be relocated outside China. So essentially right now, a lot of companies have incentives to go overseas. But this time the change is that they now go out with brands. You’re more familiar with Chinese brands like BYD.

And also this time they’re bringing technology to other countries as well, because they realize that if you make everything in China, there’s going to be political pushbacks, right? Like from the rest of the world because of all of the concerns of industrial capacity and all of that. So this time they’re actually bringing at least part of the technologies, you know, to the rest of the world and try to localize their business as well by recruiting more people from the local area. So I think that is a very different change.
The reason why we’re seeing this new type of globalization effort by China is actually because of how the global environment has changed, right? Because of the geopolitical tensions. So I would say like the two, how China influences the global environment versus how global trade is influencing China, there’s a coevolution of that.

[Sandro Galea]
So your book, From Click to Boom, I think tells a really compelling story, right, about how China creates its e-commerce market. So tell us how it did this, and in particular, how it navigated tensions that may have emerged from companies building sometimes disruptive institutions in the context of a more closed political system. And what lessons are there that are generalizable for the U.S and for rest of the world?

[Liz Liu]
So the reason why I wrote the book is actually I found that China’s e-commerce boom should not be taken for granted because e-commerce is actually a form of market transaction that’s very difficult to emerge in the developing country. So many people assume that China’s huge demand for e-commerce was a natural result of its large population.

But there was actually a real challenge in building trust in that market. Because about 20 years ago, China had weak rule of law in the market and a lot of counterfeits in the market still today now, right? And also very low credit card usage. So in the West, if you buy something online, you are safe because if you got scammed, you can get that money back. But in China, the credit card usage was actually quite low.
So in other words, consumers have very little legal protection or protection from the credit card. They’re very vulnerable to fraud. This makes them very hesitant to shop online. So this is actually something that made me very interested because e-commerce is not like a face-to-face transaction. It actually requires a lot of trust, right? You have to pay before you actually receive the product and everything. So in economics, we actually call this institutions matter. So in other words, you need some sort of institutions in the market to make people trust, to make people feel safe, to enforce contract, to resolve disputes. But in a lot of developing countries, you actually do not have that kind of institution provided by the government.

So what I really found is that in China, what really make e-commerce possible was a process I called institutional outsourcing. So in China, as any of the developing countries, rule of law was not as strong as Western market. However, the government at the time effectively outsourced much of the responsibility of building this kind of a market institution and enforcing those institutions to the digital platforms operating in the market. For example, Alibaba’s online trading platform Taobao. So essentially at the time, because they faced weak rule of law, the platforms had to develop very strong private economic institutions, digital institutions online, to enforce contracts, to detect fraud, and also resolve disputes. Just to give you an example, in China, to deal with dispute resolution, there was actually an online jury system.

So if sellers and buyers had some disputes, they can actually file the complaint, not just to the employee or to the platform company, but actually to a panel of jurors who are also ordinary platform users, who then can read evidence presented online, pictures, the chat histories between the sellers and buyers. Then they vote, vote within 48 hours. Then the 13 jurors will actually be able to decide which side will actually win the case. And there’s a appeal process as well. So there has been actually on not just resolving disputes, but also changing platform rules somehow as well. So it’s surprising that in the U.S, we don’t have a similar institution that, at least we cannot really vote on Amazon, right? And what is also very interesting in this process is that e-commerce platforms made all of these experiments.

Online jewelry is just one example, but there’s a whole set of business institutions they built up, which basically built up very strong data capacity, and all of the institutions will facilitate a very large market that even strangers will be willing to trade with each other across the country. However, at the same time, the market and all of the institutions they build are very disruptive.

China, because of the success of e-commerce, it actually led to a large wave of closure in offline stores. And also a lot of these payment methods that was built up by the platforms was actually semi-illegal when they were launched. So at the time, only the banks were able to issue payments online. So when Alibaba launched a PayPal-like institution called Alipay, they actually beared with very large legal risk. However, what is contrary to our understanding about the Chinese government has been always intervening, always attacking the private company. In fact, the Chinese government outsourced, meaning that they tolerated a lot of these disruptive institutions that was built by private platforms because they see this is a way to encourage development, to cultivate the internet economy. Of course, there was a crackdown later on, but that was 20 years after e-commerce emerged. So I would say like this kind of a government tolerance or non-regulation was also a key to the development. And I think the also very interesting part about this is that once this very large set of digital institutions was built on the platforms, the Chinese government actively collaborate with platforms to fill in some governance gaps, for example, to enforce legal orders, to prevent money laundry, or a bunch of social experiments they did.

So essentially, they’re using platforms right now in China, right, to do a lot of things, including delivery of some of the governance, surveillance is also another example. So I would say the examples, lessons to the U.S, I think the two countries are very different. Jack Ma used to say that in the U.S, e-commerce is just a dessert because people rely so much on offline commerce. But in China, e-commerce is actually the main course. So I think the size of the market is very different. But I think there’s one thing perhaps the U.S can learn a little bit because when we’re thinking about platform governance, we often think about two ways in the U.S. One is government regulation. And second is you outsource some of the platform governance to a elite panel of experts, for example, Meta or Facebook used to have this Supreme Court of Speech. They don’t call it that but they say like in terms of to determine content moderation rules, they just outsource that to a elite panel. Whereas we never thought about, at least like in the major platforms, we don’t think about, users can actually vote, right? Users can actually decide on some of the rule changes. So I think that is very interesting. A third route to platform governance, I would say.

[Sandro Galea]
The observation that the evolution of e-commerce is not random, but actually a deliberate result of multiple small regulatory and policy changes is really interesting. Because of course, we see these things from the outside and we say, they just emerged. But it didn’t just emerge. It was a clear plan to nurture it. Let’s talk about trade for a second. So trade has been a real point of contention in the U.S.-China relationship, particularly recently. So where does e-commerce fit into this dynamic? And do you see e-commerce markets broadly as constructive influences on great power relations? Or do you think its influence is more ambiguous?

[Liz Liu]
I think at this point it’s more like ambiguous. to mind. One is that e-commerce created a new channel for cross-border trade that sometimes bypass traditional trade barriers. For example, during pandemic, in fact, also when China and U.S trade war was really at its peak, a large share of small packages were actually shipped from China to the United States as small orders, right? Small packages, because they benefited from the de minimis rule, which is a trade clause, or some people call it a trade loophole, that allowed imports valued under $800 to enter the United States without tariffs. So in other words, at the time there was a huge tariff levied on Chinese products. But if you actually sell from China as an e-commerce seller, you don’t have to pay that.
So a lot of these companies like TEMU or even Amazon, because a lot of third party sellers on Amazon are actually from China, they benefited from that. And U.S. consumers also were able to enjoy much lower prices from online platforms because of a de minimis rule. However, right now, I think it was under Biden administration, they got rid of this because they feel that this really benefited Chinese exporters, especially e-commerce sellers. So it’s no longer there. That’s why some of the prices have gone up. One natural other thing, like how it influenced U.S.-China relations, is platform competition, because Chinese platforms like TEMU and SHEIN they’re selling the products. And now people will say maybe Amazon was under some pressure as well. I think that’s indeed the case, but I think the relationship was also a little bit complicated because, one is, that over half of Amazon’s top sellers are actually based in China. So in other words, it is not a entirely competition relationship between U.S and China in terms of e-commerce. There is a mutually beneficial relationship because Amazon also benefited from Chinese sellers. And also what I found to be quite interesting is that actually some sellers even engage in cross-platform drop shipping.

So I was in Vienna I heard my Uber driver who’s telling me that he’s an Amazon seller but he sourced all his products from Chinese platforms. And he didn’t have to deal with any of this kind logistics because what he needs to do is to provide all this customer information that he collected from Amazon to the sellers on Chinese platforms. And the Chinese factories will directly send the product to his customers on Amazon. So this is called drop-shipping. Actually, a lot of these sellers on Amazon, they source product from Chinese platform as well. So in other words, it’s a very complicated relationship. It’s not just competition, but there is a mutually beneficial relationship.

[Sandro Galea]
Yeah, that is a point that is I feel often forgotten in the public conversation, that these things are cast as a great power battle and competition, but of course, the truth is far more complicated than that. What are your thoughts about how cross-border e-commerce is helping development and economic growth for middle and low-income countries?

[Liz Liu]
So cross-border e-commerce, I feel definitely e-commerce, it may not be cross-border e-commerce, but domestic e-commerce, the big takeaway in my book is that e-commerce and digital platforms, they actually point to a digital path to growth because they not only provide an additional marketing channel, but actually provide institutions as what I found in China: institutions that actually help deliver a whole set of governance and fill in some of the gaps that the government was not able to produce. So in other words, digital institutions matter. For example, one thing I think would really help is lowered barriers of trade. So in Chinese case, actually a lot of small business people, if they are located in very remote areas, once you have basic roads and internet, they were able to sell to the national market. That really reversed their fortune. And one striking fact that I found on the Chinese market was also there is something about gender balance in e-commerce entrepreneurs, which you don’t really found in other areas of business.

50% of the sellers on Chinese e-commerce platform were actually women on Taobao. This is striking because in any part of business, you don’t see that. I think the reason why there’s a very large share of the e-commerce sellers who are women is because the time is more flexible and there’s a reduction of market discrimination because a lot of these kind of business interactions are not face-to-face.

So I think there are a lot changes that relates not just, you have additional channel to sell products, but actually the rules and also the institutions and governance in the market.

[Sandro Galea]
So because we are in 2026, I have to ask you about AI. So AI, what’s the role of AI in e-commerce and where would we be if we’re having this conversation 10 years from now with respect to how AI has changed what we’re talking about today?

[Liz Liu]
Yeah. Well, I cannot say like what will happen in 10 years because I think things are moving so fast. But what I found were some like very interesting trends. One is that AI started to assist with product design and marketing. Marketing is easier to understand because, one big problem for cross-border e-commerce is that people face language barriers, right? If you’re a seller from China, sometimes their English ability is not great and they write English that’s not very, that’s not making sense, or like that would happen in the past. But right now, like with this, services are much easier and product descriptions are much easier to write.

And they also can name the product to make it very appealing. For example, I studied the pearl industry in China and how live streaming e-commerce actually transformed that. One thing is that in the past, they found it so hard to name a white pearl, right? But right now, they can easily use ChatGPT or Deepseek, that kind of AI tools to change the name to Luna Radiance or Snowdrop Pearl to make it very attractive. They also use AI to even do product design because in pearl industry some sellers started to use platforms. Essentially they use the text to image system. In other they write what they want to design and then you will produce an image. Then they can follow that and do that.

And the second thing I find interesting, which I think matters more, is that AI can actually improve inventory management and logistics. I actually think this is a very big problem for all retailers because retailers constantly face a difficulty to think about how much I should produce. I think fashion industry, for example, for every season, they will have to change the styles. But for each style, how much they produce, it’s actually a big problem. If you produce too few you cannot satisfy. You lose money, right? You lose potential money. But if you produce too much, there’s an inventory problem. I think it’s true also for health products, because there’s an expiration rate. So inventory becomes a very huge cost for all of the retailers. However, with AI, you can actually predict how much you will make.

Actually, some people are starting to use that to try to handle their inventory and logistics. Because for e-commerce, what’s very important is to make sure the product can be delivered in time; however, in order to know where to deliver, to store in which warehouse, you would need something called a preload, right? So for example, if Amazon promised that you will get the product within 48 hours, they will actually locate, predict the demand and locate, the product in the warehouse that’s close to you. But that requires very good predictive techniques and AI can actually help that.

[Sandro Galea]
I sense from your answers that you’re fundamentally an optimist. In this moment of disruption and uncertainty, what gives you the most hope?

[Liz Liu]
Well, hope, okay. I would say like there are two reasons to be hopeful. One scientific and one unscientific. Which one do you want to hear?

[Sandro Galea]
I’d like to hear them both, in that order.

[Liz Liu]
Okay, so the scientific one, I think even though the world feels chaotic right now, statistically it’s actually much better than before.

[Sandro Galea]
Yes, that is an excellent point.

[Liz Liu]
So I think, Sandro, you know much better. Yeah, so you know much better than me, like child mortality or life expectancy. Yeah, we made a lot of progress as a humankind, right? In the past hundred of years. I oftentimes think about this when I watch one of my favorite movies, Midnight in Paris, you know,

[Sandro Galea]
Yes, I know the movie.

[Liz Liu]
In that movie, you actually travel back, right, to the golden ages if there is a carriage, you know, that stopped in front of you. I’ll ask myself, like, if there is such carriage stopped in front of me, would I be able to travel back in time to the golden ages in history? I would tell myself no, right, because now is actually better than the past.
But the non-scientific answer, I would say, while I don’t agree with Elon Musk on many things, but I think he made a very good point at Davos this year, during which I think he said, it’s better for your quality of life to be an optimist who’s wrong than a pessimist who’s right. So I think in this spirit, I would say, I’d rather have hope, right? Even if it turns out to be a little bit blind, but I’d rather have hope.

[Sandro Galea]
That is a perfect note on which to end. I am Sandro Galea. I have been speaking with Dr. Liz Liu about the future of globalization amid geopolitical uncertainty and technological change. Thank you, Liz, for this most interesting conversation.

[Liz Liu]
Thank you very much.

[Sandro Galea]
And thank you to everybody who has joined for this Ideas Matter. I look forward to continuing the conversation.