As China Forges Global Trade Ties, US May Fall Behind

Chinese Premier Li Keqiang attends the signing ceremony of the Regional Comprehensive Economic Partnership Agreement (RCEP) after the fourth RCEP summit, hosted by video link on November 15, 2020. Chinese Minister of Commerce Zhong Shan signed the agreement on behalf of China.

Xinhua News Agency | Xinhua News Agency | Getty Images

The biggest hole in the Biden administration’s otherwise encouraging efforts to better compete with China – a vacuum that could undermine all other elements – is the lack of an international trade strategy.

As President Xi Jinping’s China accelerates its efforts to negotiate multilateral and bilateral trade and investment deals around the world, Republicans and Democrats in the United States have become allergic to such deals.

“The Chinese believe deeply in the importance of the correlation of forces, and they believe that the correlation at the moment is in their favor,” said Stephen Hadley, former national security adviser to President George W. Bush. If the United States fails to change this Chinese conviction, it will not regain the influence necessary to deal with Beijing.

“The most important missing piece to changing the Chinese calculus is a trade strategy,” says Hadley, a strategy that could rally global allies, provide jobs and growth for the United States, and counter growing efforts by China. to organize the world economy around itself.

Former US Secretary of State Madeleine Albright once called the United States the “must-have country” of the world, but Xi is now positioning China as the “must-have economy” of the world.

In 2018, 90 countries in the world traded twice as much with China as with the United States In 2019, China surpassed the United States as the world’s largest recipient of foreign direct investment. The underlying message now is that the Chinese market is so big, its liquidity so deep and its post-Covid-19 rebound so dramatic (+ 18% in the first trimester), that no reasonable country can resist its adoption.

“In this era of economic globalization, openness and integration are an unstoppable historical trend,” said President Xi mentionned this week at the Boao Forum for Asia. Without mentioning Washington by name, he said that “attempts to ‘build walls’ or ‘decouple’ go against the law of economics and market principles. They would harm the interests of others without benefiting oneself ”.

It’s far too easy to punch holes in Xi’s statement: China remains in the grip of market protections, and state intervention at home and abroad is growing. Intellectual property theft and cybercrime continue.

Yet without a modern, forward-looking trade strategy, the United States is entering this global dynamic with an arm tied behind its back.

“The United States and China are engaged in a strategic competition which will determine the shape of world politics of this century”, wrote Hank Paulson Jr., former Secretary of the US Treasury, in the Wall Street Journal. “But when it comes to trade, a critical dimension of that competition, America is giving way.”

This undermines the early victories in Biden’s emerging approach to China.

First, Biden took advantage of a bipartisan consensus, rare these days in Congress, on the urgency of addressing the Chinese challenge.

Second, Biden has started rallying friends and allies in Asia and Europe who share his concerns about China.

Biden hosted the first-ever Quad leaders meeting in March, including the United States, India, Australia and Japan, designed to balance China in the region. To address China’s vast vaccine diplomacy, countries agreed to distribute one billion doses of vaccines by 2022.

Last week, Biden welcomed Japanese Prime Minister Yoshihide Suga as the first head of government to visit Washington. Their joint statement did not mention China, but pledged “that free and democratic nations, working together” could act to resist “challenges to the free and open rules-based international order.” They also talked about ensuring peace in the Taiwan Strait, which is the first mention of Taiwan by a Japanese prime minister in a joint statement with a US president since 1969.

And for the very first time, the EU on March 22 imposed economic sanctions against China for human rights violations in the Xinjiang Autonomous Region, acting alongside the United States, Canada and the United Kingdom.

Third, the Biden administration’s $ 1.9 trillion Covid-19 stimulus package and the $ 2.3 trillion pending infrastructure investments will improve the competitiveness of the United States through investments in the human capital, physical infrastructure and advanced technologies.

The problem is, the same bipartisan consensus in Congress regarding the Chinese challenge comes with a bipartisan allergy to the kinds of multilateral and bilateral trade and investment deals needed to meet Beijing’s momentum.

As of November, China was one of 15 Asia-Pacific countries, accounting for 30% of global GDP, which sign the Regional Comprehensive Economic Partnership, or RCEP. It was China’s first free trade deal with US allies Japan and South Korea, creating the largest trading bloc in history.

China also Express interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP. It was the trade deal signed by 11 countries after the Trump administration withdrew from the effort as one of its first acts of government.

If the RCEP agreement goes into effect, which is likely before January 2022, and if China is able to join the CPTPP, the game of international trade agreements in Asia would be largely over and China will have won.

At the same time, China is advancing on other fronts.

In January he closed the EU-China Comprehensive Investment Agreement (CAI), much to the dismay of new officials in the Biden administration. (The completion of this agreement has blocked in the European Parliament due to new Chinese sanctions against the EU.)

But whatever happens in Brussels, most European countries are eager to conclude trade and investment deals with China, which last year for the first time became the EU’s biggest trading partner.

The real problem lies in the lack of alternatives in Washington – driven by the flawed rhetoric from both sides that globalization has worked against American interests and jobs.

As the Republican Party transformed into the Trump party, it abandoned the type of free trade policy that President Ronald Reagan kissed as “one of the key factors in the great prosperity of our nation”.

While President Barack Obama negotiated the Trans-Pacific Partnership during his presidency, presidential candidate Hillary Clinton in 2016 opposite the deal after calling it “the gold standard” just three years earlier.

“Democrats and Republicans now advocate ‘a trade policy for the middle class’,” written Adam Posen of the Peterson Institute in a compelling foreign affairs story that debunks this approach. “In practice, this appears to mean” Buy American “tariffs and programs designed to save jobs from unfair foreign competition.”

Instead, he writes, “Washington should strike deals that increase competition in the United States and raise tax, labor and environmental standards. It is the illusory withdrawal from the international economy over of the past 20 years that has failed American workers, not globalization itself. “

Instead, as the Biden administration has put its trade agenda on hold, China is moving forward – making the deals and setting the standards that will shape the future.

Frederick Kempe is a bestselling author, award-winning journalist and CEO of the Atlantic Council, one of the United States’ most influential think tanks on world affairs. He worked at the Wall Street Journal for more than 25 years as an overseas correspondent, deputy editor and senior editor of the newspaper’s European edition. His last book – “Berlin 1961: Kennedy, Khrushchev, and the World’s Most Dangerous Place” – was a New York Times bestseller and has been published in over a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look every Saturday on top stories and trends from the past week.

For more information on CNBC contributors, follow @CNBCopinion on Twitter.

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