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America Should Rewrite the China Trade Contract

Nov 16, 2020 Arvind Subramanian

America and other countries have no right to obstruct China’s economic rise or dictate its development model. But US President-elect Joe Biden’s incoming administration can and should revise decades-old trade arrangements with China to take account of changed realities.

NEW DELHI – Once US President-elect Joe Biden’s administration has made the relatively easy decisions to rejoin the Paris climate agreement, remain in the World Health Organization, and attempt to reboot the World Trade Organization, it will confront three key foreign-policy issues. In order of importance, they are China, China, and China.

Biden’s dilemma is that China has become too deviant to cooperate with fully, too big to contain or ignore, and too connected to decouple from. So, what principles should govern America’s economic engagement with it?

Two decades ago, the United States and the rest of the world bet that China, as it became richer, would open up economically and politically, while remaining benign in its international conduct. Under the resulting implicit contract, embodied in China’s 2001 WTO accession agreement, the world promised to guarantee market access for Chinese exports; in return, China would make its economy more open and transparent, and play by international rules.

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j. von Hettlingen Nov 22, 2020

Arvind Subramanian says, in the case of China, the genie is out of the bottle. No country - including the US - has the right to “obstruct” China’s economic rise, or “dictate” its development model. In the last two decades, the world has been grappling with an increasingly assertive China, while the US seeks to contain its economic and political rise, which has not been entirely peaceful, given the aggressive nature of China’s Communist Party under President Xi Jinping.
While in office, Trump has taken a more confrontational approach to China, with the rivalry between the two countries evolving into a new “cold” war. Already as a candidate he had accused China of stealing US jobs and trade secrets, vowing to deal with these grievances decisively. After losing to Biden, he has shown no signs of conceding. Many fear he could make more disruptive moves against China that are likely to further strain the tense relationship with Beijing that Biden will soon inherit.
Ten days ago Trump has issued an executive order barring Americans from investing in Chinese companies with ties to China’s military. More steps are said to be in the works before the new administration takes over, making it harder for Biden to roll back certain policies. While Trump’s rhetoric has been bellicose, Biden will soften his tone, but it does not mean that he will be more accommodating of China, as Trump suggests.
The author says “Biden’s dilemma is that China has become too deviant to cooperate with fully, too big to contain or ignore, and too connected to decouple from.” Hence his administration needs a new strategy to engage with China - politically and econompically. He believes that Biden “can and should revise the decades-old contract to account for changed realities. The more China plays by the rules, the more such a revision would benefit developing countries that can trade with it.”
First, it is time for China to ditch its status a “developing country.” As the world’s second largest economy after four decaddes of high and steady growth, it is no longer a poor country. Trump had criticised Beijing for engaging in unfair trade practices by taking advantage of this status, that entitles a country to preferential treatment as an emerging market under the rules of the World Trade Organization and other international agreements.
Second, China has long deviated from “the spirit of the original contract through beggar-thy-neighbor exchange-rate policies (especially from 2004 to 2010) that artificially preserved its economic competitiveness…. The world must respond by codifying and enforcing rules on exchange-rate manipulation.” Due to the blurry line between private and state businesses, the definition of “excessive” intervention “should be widened to include foreign-exchange purchases by state-owned banks as well as those by the central bank.”
Third, the 2001 WTO accession agreement “imposed obligations on China concerning its state-owned enterprises (SOEs). But, with the Chinese state playing a much larger direct and indirect economic role under Xi, these rules have to be adapted, tightened, and made more justiciable. Regarding Chinese investment abroad… the world should treat skeptically China’s claim” that the state is not involved in the SOEs, because they are run on “commercial principles.” The problem is that there is resistance in China to reform in sensitive areas on economic and ideological grounds.
As the Asia-Pacific region is going to dominate global trade, Biden “must therefore consider the regional route that Trump abandoned when he withdrew the US from the Trans-Pacific Partnership (TPP) in 2017. Rejoining its successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), would enable the US to integrate more deeply with the rest of Asia and possibly also with Europe, thereby reducing its dependence on China while inflicting de facto exclusion costs on it.”
The US has been left out of the “recent signing of the Regional Comprehensive Economic Partnership, a pan-Asian free-trade agreement including China…. But Asian countries have fewer options relative to China: They are more dependent on and integrated with it, and Trump’s 2017 rejection of the TPP left them without an anchor for managing economic relations with China.” With Trump’s departure, and given "China’s increasing assertiveness, Asian countries might go along with or even secretly hope the US and Europe reset relations with China.”
Biden knows that China is "too important to ignore,"and the "challenge it presents defies easy solutions," and that America and the world should "brace themselves for the long haul."
One can place trust in Biden's skills in managing the US diplomatic relationship with China, which is expected to differ significantly from Trump’s approach. Trump has earned the moniker “tariff man” during his time in office, because of his habit of slapping punitive levies on imports to the US. Undoing some of those tariffs will not be straightforward.
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Nick Wang Nov 19, 2020

Singapore Prime Minister Lee Hsien Loong hopes that Biden will develop a framework for an overall constructive relationship with China.
This means a relationship in which US and China remain in competition with issues to resolve, but ultimately do not want to collide and will work to develop areas of common interests while constraining the areas of disagreement
https://www.straitstimes.com/singapore/politics/pm-lee-hopes-us-president-elect-biden-will-come-up-with-framework-for
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Godfree Roberts Nov 16, 2020

China has kept her stringent, unequal WTO commitments far better than the US kept hers.

As for "Xi’s repressive regime is fashioning a new brand of inward-oriented, state-dominated capitalism. And it poses a threat to many of its neighbors, including Taiwan, Australia, India, the Philippines, Vietnam, and Japan”.

Xi's "regime" is neither inward-oriented nor state-dominated and its accession to the RCEP with the Australia, the Philippines, Vietnam, and Japan demonstrates that it is no threat to anyone.

Indeed, China's is objectively the most outward-looking, privatized economy in its long history.

The sad truth is that the American Century ending and the Chinese Millennium is beginning.

We should just relax and enjoy the spectacle.
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Michael Public Nov 16, 2020

Why remove tariffs? If anything - every country should be forced to put tariffs on China until their imports roughly equal their exports - all countries should operate (more or less) with a quid pro quo arrangement with others. Those who export in an unbalanced manner soon find a new purpose for their new found profits - typically military equipment - and once you are holding a hammer everything looks like a nail.
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Michael Public Nov 16, 2020

The World? China is 1/5th of the World. Maybe you mean 'The West'?
- P. Kamath Nov 16, 2020
  
  World population is some roughly 7 billion plus hundred million. That is about five times more. No matter what , that is too many! What do you say?
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