Beijing will avoid taking the lead on Pacific trade
Financial Times
A free-for-all is the likely result of the US withdrawal from TPP
One of President Donald Trump’s first acts in office was signing an order withdrawingthe US from the Trans-Pacific Partnership, a historic 12-nation trade pact. Critics have responded, in unison, that with a single signature, the US has abdicated its leadership position in the global trading system — and that its successor would be China, which was now free to write the rules of global trade, increasing its influence across Asia and indeed the world.
This assessment is appealingly simple. It does not square with reality.
America and many European countries are questioning the benefits of globalisation and turning in on themselves. But so far from filling the vacuum created by a receding west, Beijing is indulging its own strain of isolationism. Yes, President Xi Jinping recently travelled to Davos, Switzerland, to defend globalisation in front of the world elite. Back home in China, though, the government is shutting down capital flows and erecting various barriers to foreign business. Spooked by big capital outflows, Beijing has all but banned the purchase of foreign exchange. Cross-border trade is feeling the pinch.
For many years, China has been the world’s biggest goods trading nation, but in 2016 combined Chinese exports and imports fell by 7 per cent in dollar terms, after falling 8 per cent in 2015. In other words, trade is becoming less important for the Mandarins in Beijing, who have been promoting domestic consumption for years and whose “Made in China 2025” plan envisions a far more self-sufficient economy.
Excluded from TPP from the outset, China has halfheartedly pursued a number of alternatives, including the Regional Comprehensive Economic Partnership. But these are very far from realisation and, given China’s spotty record of negotiating multilateral agreements, and the animosity between China and many of its neighbours, their future is uncertain.
China will continue to pursue bilateral trade agreements with countries throughout the region. It will also continue to regard trade as a weapon it can use to punish smaller countries that get out of line. Recent examples of this include South Korea, which has faced unofficial trade barriers in China since it announced it would install an American missile defence shield, and the Philippines, where banana exports to China were blocked in response to territorial disputes in the South China Sea.
The drawn-out negotiations involved in merely setting a trilateral meeting for economic representatives of China, South Korea and Japan shows just how unrealistic it is to expect an imminent China-led regional trade agreement — let alone a new Chinese-dominated global economic order.
The more likely result of Mr Trump’s rejection of TPP will be a vacuum, followed by a trading free-for-all. The chaotic economic situation that ensues will only increase the danger of conflict in a region bristling with nuclear weapons, where historical grievances still fester and rising powers are intent on regaining lost territory.
In the face of an American retreat, the most optimistic scenario might be for China to step swiftly into the role as regional hegemon, stabilising a potentially explosive region. China is not yet capable of assuming this role, though, and it has sent mixed signals about whether it even wants to do so.
The best outcome for China, the US, and countries across Asia would be for Mr Trump to recognise that he still has an opportunity to make a new deal on trade with a region that will remain the fastest-growing in the world for many years to come — so long as it remains peaceful.
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