Chinese Premier Li Keqiang attends the signing ceremony of the Regional Comprehensive Economic Partnership (RCEP) agreement following the fourth RCEP summit held on November 15, 2020 via video link. Chinese Trade Minister Zhong Shan signed the agreement on behalf of China.
Xinhua News Agency | Xinhua News Agency | Getty Images
The biggest hole in the Biden government’s otherwise encouraging efforts to better compete with China – a loophole that could undermine all other parts – 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 agreements around the world, both Republicans and Democrats in the US have become allergic to such agreements.
“The Chinese firmly believe in the importance of the correlation of forces, and they believe the correlation is in their favor right now,” said Stephen Hadley, former national security adviser to President George W. Bush. If the US does not change this Chinese belief, it will not regain the leverage needed to deal with Beijing.
“The most important missing element in changing this Chinese rationale is a trade strategy,” says Hadley, which could gather global allies, create American jobs and growth, and counter the escalating Chinese efforts to organize the world economy around them.
Former US Secretary of State Madeleine Albright once called the US the “indispensable country” of the world, but Xi now positions China as the “indispensable economy” of the world.
By 2018, 90 countries in the world were trading twice as much with China as they did with the United States. By 2019, China surpassed the US as the world’s largest recipient of FDI. The underlying message now is that China’s market is so large, its liquidity so deep and its recovery from Covid-19 so dramatic (up 18% in the first quarter) that no sane country can resist its acceptance.
“In times of economic globalization, openness and inclusion are an unstoppable historical trend,” President Xi told the Boao Asia Forum this week. Without mentioning Washington by name, he said that “attempts to” build walls “or” decouple “are contrary to economic law and market principles. They would harm the interests of others without being of any use to yourself.”
It is far too easy to poke holes in Xi’s statement: China is still rich in market protection measures and government interventions at home and abroad are on the rise. Intellectual property theft and cybercrime continue.
But without a modern, future-oriented trade strategy, the US is entering this global crisis with one arm behind its back.
“The US and China are in a strategic competition that will determine the shape of world politics this century,” former US Treasury Secretary Hank Paulson Jr. wrote in the Wall Street Journal. “But when it comes to trade, a critical dimension of this competition, America is stepping down.”
This undermines the early successes of the emerging Biden approach to China.
First, Biden has benefited from a bipartisan consensus, rare in Congress these days, on the urgency to face the Chinese challenge.
Second, Biden has started gathering friends and allies in Asia and Europe who share his concerns about China.
In March, Biden called the first meeting of the heads of state and government of the “Quad”, in which the US, India, Australia and Japan participated, in order to balance China in the region. To address China’s far-reaching vaccine diplomacy, countries agreed to distribute 1 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 made no mention of China, but did promise that “free and democratic nations that work together” could act to withstand “challenges to the free and open rules-based international order”. You also spoke of ensuring cross-strait peace. This is the first mention of Taiwan by a Japanese prime minister in a joint statement with a US president since 1969.
And for the first time, on March 22, the EU imposed economic sanctions on China for human rights abuses in the Xinjiang Autonomous Region, which acted alongside the US, Canada and the UK.
Third, the Biden government’s $ 1.9 trillion Covid-19 stimulus plan and its upcoming $ 2.3 trillion infrastructure-related investment will keep the US competitive through investment in human capital, physical infrastructure and advanced Improve technology.
The problem is that the same bipartisan consensus in Congress on the Chinese challenge comes with a bipartisan allergy to the kind of multilateral and bilateral trade and investment deals that are required to address Beijing’s dynamic.
Last November, China was one of 15 Asia-Pacific countries, accounting for 30% of global GDP, to sign the Regional Comprehensive Economic Partnership (RCEP). It was China’s first free trade agreement with its US allies Japan and South Korea, which formed the largest trade bloc in history.
China has also expressed an interest in joining the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP). This was the trade deal that eleven countries signed after the Trump administration pulled out of the effort as one of its first acts of government.
Should the RCEP agreement enter into force, which is expected to be before January 2022, and should China be able to join the CPTPP, the international trade agreement in Asia would have largely ended and China would have won.
At the same time, China is making progress on other fronts.
In January, it signed the EU-China Comprehensive Investment Agreement (CAI), much to the dismay of incoming Biden administration officials. (The conclusion of this agreement has stalled in the European Parliament due to new Chinese sanctions against the EU.)
Whatever happens in Brussels, most European countries are eager to sign trade and investment deals with China, which became the EU’s largest trading partner for the first time last year.
The real problem lies in Washington’s lack of alternatives – fueled by the misrepresentation by both parties that globalization has worked against American interests and jobs.
When the Republican Party transformed into the Trump Party, it abandoned the kind of free trade policy that President Ronald Reagan saw as “one of the keys to our nation’s great prosperity.”
While President Barack Obama was negotiating the Trans-Pacific Partnership during his presidency, presidential candidate Hillary Clinton rejected the deal in 2016 after calling it the “gold standard” only three years earlier.
“Both Democrats and Republicans are now advocating ‘a trade policy for the middle class,'” writes Adam Posen of the Peterson Institute in a convincing foreign policy that exposes this approach. “In practice, this appears to mean tariffs and ‘Buy American’ programs aimed at saving jobs from unfair foreign competition.”
Instead, he writes: “Washington should conclude deals that increase competition in the United States and raise tax, labor and environmental standards. It is the self-deceptive withdrawal from the international economy that has failed American workers for the past 20 years , not globalization itself. “
While the Biden government has put its trade agenda on hold, China marches forward – closing deals and setting the standards that will shape the future.
Frederick Kempe is a best-selling author, award-winning journalist, and President and CEO of the Atlantic Council, one of America’s most influential think tanks on global affairs. He worked for the Wall Street Journal for more than 25 years as foreign correspondent, assistant editor-in-chief and senior editor for the European edition of the newspaper. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place in the World” – was a New York Times bestseller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his view every Saturday of the top stories and trends of the past week.
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