China’s chair left unoccupied at Obama’s free trade party

Yesterday in class, some of you asked why did the U.S. decide to join the TPP negotiation at the very beginning? The following report from the Financial Times (UK) may provide some insightful views. To put it simply, it is a big game involving national interests. You can also rethink about those points I mentioned in the class regarding the “strategic importance of Asia to the US”.

From Financial Times April 2, 2013

With the rise of China in its sights, the Obama administration has posted marines in Darwin, Australia, and increased the number of warships visiting Subic Bay in the Philippines. The “pivot” to Asia now has a new stopover: Brussels.

After years of discussing the idea, the US and the EU are finally starting to negotiate a free-trade agreement which would form an economic zone covering 40 per cent of the world’s gross domestic product.

At the same time, momentum is building on another important trade initiative, the Trans-Pacific Partnership, which brings together the US with several of the Asia-Pacific region’s most dynamic economies: Singapore, Australia, Vietnam and – since two weeks ago – Japan. It will come as a surprise to anyone who spent a lot of time on the campaign trail last year, but free-trade agreements have emerged as one of the biggest priorities of Barack Obama’s second term as US president.

The striking feature of this burst of free trading is who is absent. The agreements are one of the fresh ways Washington is developing to deal with China, the world’s biggest exporter of manufactured goods. After urging China to behave as “a responsible stakeholder” and after the brief flirtation with a G2 arrangement in Mr Obama’s first year, the latest trade approach might be characterised as ABC – Anyone But China.

Supporters of the US-EU trade pact complain that it is about more than China. They point to the boost to growth that could flow from a deal between two partners which already have a two-way annual trade in goods and services of $1tn.

However, much of the substance of the EU talks and of TPP points to China. The agenda includes state subsidies for business and protecting intellectual property – the sorts of issues that are huge bones of contention with Beijing.

If the US can get enough important countries to sign up, it hopes to establish global trading standards that China would feel obliged to respect.

On Capitol Hill, where free trade is not an easy sell in an era of unemployment of more than 7.5 per cent, the China angle helps to rally support.

“This is very much part of our China strategy,” an aide to a leading Republican senator puts it, talking of the discussions with the EU.

More broadly, the two negotiations reflect a different approach to global governance. Prolonged deadlock over the Doha trade round, with similar stalemates about climate change, small arms and other issues, has led to deep scepticism about the idea of achieving global agreements on important issues.

TPP and the US-EU trade talks represent an alternative strategy, an attempt to forge fresh rules by appealing to smaller groups of like-minded nations, in this case working around China rather than with Beijing. Supporters say this is not an abandonment of global institutions like the World Trade Organisation, but simply a realistic assessment of how to get things done.

The big question, of course, is how China will react. Ever since it joined the WTO more than a decade ago, China has had one foot inside the global trading system and one outside it.

On most of the occasions that China has lost legal challenges at the WTO, it has implemented the rulings and made its trade laws compliant. But Beijing has yet to open up government procurement, an important factor in an economy like China’s. At the same time, allegations of Chinese hacking of trade secrets from other countries are seen by many as an affront to the very idea of free trade.

Beijing has strong views about what is really going on.

“The US is trying to rewrite global trade rules behind our backs,” says a senior Chinese official.

The risk of the US approach is that it could encourage China to turn its back even further on the global trading system, diminishing the incentive to comply rather than intensifying it.

If that were to happen, the US-EU trade talks would not herald a new era of economic integration but rather another nail in the coffin of globalisation.

 

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Author: Sheng Lu

Professor @ University of Delaware

18 thoughts on “China’s chair left unoccupied at Obama’s free trade party”

  1. It seems as if the US and China are in a constant competition with each other over trade. Both countries need each other to be successful in this global economy and I feel that being in agreement with each other rather than competing to be the best would create better outcomes.

    1. very good thinking! I agree that a positive, cooperative and comprehensive US China commercial relations will bring prosperity, peace and stability not only to the people of the two countries but also to the regions and the world at large. Just that China and the US are both too big and too complicated to reach a deal at this point–for economic and political reasons. But the dialogues are always going on-for example the annual US-China Joint Commission on Commerce and Trade (JCCT) meeting and the US-China Strategic & economic dialogue.

  2. I agree with both of your comments. The U.S. and China are to large, successful and stubborn, which is causing them to make coming to a deal difficult, but both countries need to work together. They need to incorporate other developing countries in the world in their deal as well because other developing countries need to grow and be able to make it in the world and try to get their economy out of poverty. If these countries would just work with one another they would have a successful deal. Although I feel like in the future things will cost too much to be manufactured in China, and a different developing country would take over and then eventually things would become to expensive there as well. People would eventually want to be paid more for their labor and the rising cost of living in the country if becomes more successful with more business from other countries and then prices would become inflated. It seems like this is just a cycle that could keep going on with different countries.

  3. After reading this article, I agree with the two comments above. The United States and China are two of the largest in the world and they are both always in constant competition with each other like briannamartin2013 mentioned. In order for the U.S. and China to be successful they both need to work with each other. I believe the U.S. and China will have a better outcome if they incorporate developing countries.

  4. I, too, share the views of my fellow students on the subject of this article. While this approach does prove an interesting one, particularly after doing case study #2 in class, I do not think it is wise for the US to ignore China. This will only create more of a divide between the two countries. Because every country looks out for its own best interests, China is likely to see this move as a slap in the face from the US. This will hinder future dealings between China and the US. As two global leaders, these two countries must find a way to work in congruence with one another or risk further complications down the road.

  5. Its not surprising to find the U.S and China in constant competition as they are the two largest global leaders. I too agree that they should work together and incorporate developing countries into the agreement. However I do believe that this constant competition with each other wont calm down anytime soon. Specially if the U.S tend to “ignore” China with this approach, just like Coollong13 mentions above.

  6. I thought this article was great because it reveals the United States’ intimidation by China’s power. It shows that the US needs to do so much in order to compete with China but at the same time, risking the fact that China could completely ignore the US’s efforts. Though working together seems cut and dry, after doing case study 2, it is clearly not as easy as many would assume.

  7. I think that the U.S ignoring or upsetting China is one of the worst things that can be done. China plays such an important role in our economic success through globalization that both countries need to come to an agreement and negotiate a trade policy that will be positive for both parties. Competition is obviously normal, and expected, being that both countries are the largest global leaders in the world. However, some kind of agreement needs to be made so that China does not think we are trying to change the trade policy “behind their back.”

  8. Especially with the current state of the economy, the US needs to be careful with their trade agreements, in order to prevent things from getting any worse. The US and China are the two largest economies in the world, and it would not make sense for the US to ignore China in trade agreements. The US and the EU have finally started to negotiate a freetrade agreement, which would form and economic zone. Free trade agreements have emerged as one of Obama’s biggest priorities, and I think that China should be included to overall benefit the US.

  9. I was really interested to see the competition between the US and China through these trade agreements. The article stated how the US hopes to establish global trading standards China feels obliged to respect. I was surprised to see how the US goes through great lengths to accommodate China’s standards but due to China’s power over the economy and industry, it seems to make sense. I was unaware of how Beijing played into the trade agreements. I was unaware that Beijing had such a strong presence in the field.

  10. I agree with a lot of the comments above. I feel like if the U.S. keeps trying to ostracize China, it will only make things worse. It’s the same kind of concept if you’re dealing with people; if you pick on them long enough, eventually they are going to fight back. I understand why the U.S. doesn’t want China to be a part of any of the agreements, but because China is such a huge player it’s not the best idea to get them on our bad side. A time may come where we might desperately need them, but if the U.S. keeps this up, China will definitely not come to our aid.

  11. I really don’t believe that the US should make trouble with China. With two major global leaders of the world, of course there is going to be competition. I find it impossible that they will be able to find an agreement that will help both China and the US, because of how they compete against one another. Besides, since the US is in trillions of dollars in debt with China, it’s not a good idea to get on their bad side.

  12. I agree with many of the students that it seems as though the US and China are always competing against each other in regards to trade. However, both countries need each other in order to be successful in the global economy. I think that being in agreement with each other instead of that constant competition would be the best thing to do and would also create a better outcomes in the long run. If they could have a positive and cooperative relationship, they will achieve not only prosperity but also peace and stability. However I feel that this is easier said than done since both China and the US are too big and complex to be able to agree on a deal.

  13. The United States and China are two of the largest in the world and they are often in competition with each other like briannamartin2013 mentioned. Instead of focusing so much on competing with each other it is crazy to think about how we haven’t come to some sort of agreement with each other to combine forces. As I’ve stated in a few other comments. Learning from others is so beneficial and there is so much that can be learned from different perspective. I believe the U.S. and China will have a better outcome if they incorporate developing countries.

    1. I wish our class has left me with more time to share my personal experiences and observations of the complex but critical US-China commerical relationship in the 21st century. But indeed, both of the two countries are like “thousand-pond guerrillas”. The world is like a china store. You definitely don’t want to see these two guerrillas fight against each other.

  14. I think it is very hard to have two different “types” of countries with different governments, thinking, and society agree on the same topics. Clearly it makes sense if they could agree on the same aspects and work together it would be ideal but this is very difficult to do. I think that at the same time it is good to be in competition because it makes each country better. If two people are in competition with one another then they will both try their hardest. But then again this makes it a lot more difficult too, each country feels the need to go behind the other country’s backs.

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