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Thinking About China’s Active Engagement in Global Free Trade


Source: Flicklr/ The White House

Hien Phan


Having elected a new president in November 2020, the world is now watching to see how the US will seek to restore its role as a global leader. In contrast, China has attempted to become a “rule shaper” in global trade systems by signing the Regional Comprehensive Economic Partnership (RCEP) with 14 other Asia-Pacific states - the world’s largest trading bloc which accounts for nearly 30 per cent of the world’s population. Beijing’s firm support for the Bogor goals - a commitment to achieving free and open trade and investment by 2020 agreed upon by APEC leaders in Bogor, Indonesia in 1994 - and consideration of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) were welcomed at the 27th Economic Leaders’ Meeting of the Asia-Pacific Economic Cooperation Forum (APEC) in November this year.

In terms of regional integration, the RCEP multilateral trade pact is a major achievement for Asia and particularly the Association of Southeast Asian Nations (ASEAN). This is because the pact provides an ASEAN-based common framework for engaging external powers, specifically China. This is also the first free trade agreement between Japan, China and South Korea. Still, many regional states remain wary of the motivations behind China’s favourable turn towards the global trade system. In addition, China’s gains are to the detriment of the US. Therefore, they should expect sustained US efforts to counter China’s growing influence in the region.

Benefits of multilateral trade systems

The trade war with the US has caused China to lose $87.6 million due to a decrease in its exports to the US between 2018 and 2019. China has also been substantially affected by the COVID-19 pandemic. The world’s second largest economy shrank 6.8 per cent in the first quarter of 2020, its first contraction since 1992. While the economy managed to recover and grow by 4.9 per cent in the third quarter, the figure was still below expectations. Not only has China’s economy been damaged, but so has its image as a responsible major power. A recent Pew Research Center study found that negative criticism of China has reached significant highs in many states which feel that China did not respond well to the pandemic. Furthermore, China’s warplanes entering Taiwan’s air defense identification zone and Beijing's successful clampdown in Hong Kong have accelerated other states’ fears of China’s rise.

As such, China’s favourable turn towards multilateral trade is a pragmatic approach to stimulate the economy and restore global confidence in its rise. As China is the world’s largest exporter, with exports accounting for 20 per cent of its total GDP, its recovery hinges on global demand for Chinese goods. This can be achieved by assisting other states with their economic recovery. China’s pledge to import more goods and services and sign more trade agreements will facilitate deeper connections with the Asia-Pacific and offer opportunities for other RCEP and APEC member states to boost exports - the main driver of economic growth.

To speed up its recovery, China also needs to resume massive infrastructure projects as part of the Belt and Road Initiative (BRI). This is because the BRI, China’s most important economic program, makes up 17 per cent of its total exports. Therefore, assisting other states, especially those eligible for assistance under the BRI, and promoting China’s image as a responsible major power that defends open and free trade, could help to obtain the support of BRI states and ensure the program continues to be rolled out worldwide.

Impacts of China’s favourable turn towards multilateral trade systems

Nevertheless, China’s favourable turn towards RCEP, CPTPP and APEC still concerns many regional powers for two reasons. As Asia, and particularly ASEAN, is the key arena in the US-China rivalry, China’s expanding role in the region is more likely to elicit a response from the US. Hence, regional states could become even more deeply involved in the US-China competition. In addition, although RCEP is an initiative of ASEAN, the question of whether or not ASEAN can take the lead in the negotiations does not seem to be straightforward.

As such, China’s turn towards multilateral trade systems has several implications.

Firstly, states should expect more US attempts to stall China’s growing influence on global trade. Accordingly, they should be more cautious of the major powers’ rivalries. Following the election, it seems that President-elect Joe Biden’s policies will significantly reflect public animus towards China. The President-elect is more likely to maintain a tough stance on China - a stance favoured by 73 per cent of Americans. In addition, although he favours restoring the US-led global system, Biden should remain conscious of the “America first” sentiment that has so far limited free trade and encouraged US isolationism.

On the economic front, Biden is less likely to continue the costly and difficult-to-win trade war with China. Instead, he has promised to return to multilateralism and improve trade relations with US allies. But Biden’s administration has yet to show a clear position on global trade systems. If both the US and China consider joining the CPTPP, it will be incredibly difficult to negotiate a renewed agreement. This is because the trade pact will be a platform for Biden to show his tough views on China and seek the best deals for the US to consolidate his support at home.

On the security front, Biden is more likely to prioritise and publicise his strategies on a free and open Indo-Pacific, strengthening US defence relations with the Quad (Australia, India and Japan) and Southeast Asia. This will facilitate more talks on regional security and drive joint military and navigation operations in the East and South China Seas, which will consequently heighten the threat of military clashes between the two major powers.

Another battleground between the US and China is the Mekong river. Former President Trump’s administration launched the US-Mekong Partnership in September 2020 with the proposed objectives of promoting economic independence, sustainable development and transparent, rule-based approaches to transboundary waters. However, this launch was believed to be an attempt to limit China’s increasing influence in the Mekong region. Biden may continue using the US-Mekong Partnership to be tough on China. In this regard, he may increasingly call on ASEAN and the Mekong states to address water resource management and law enforcement, and criticise China of manipulating control of the shared river.

Secondly, state leaders should be mindful of China’s economic influence in the RCEP. While the trade pact is initiated and driven by ASEAN, there is a high possibility that China will attempt to dominate the RCEP’s agenda, as China is the largest trading partner within the trade pact. In addition, all Southeast Asian states have been exposed to China’s economic and geopolitical influence. Having said that, since the RCEP is up for ratification and discussions continue about setting tariff schedules among member states, the trade pact will be a test of ASEAN’s unity, or whether ASEAN member states can sustain their common stance on trade relations with other powers.

Conclusion

China’s pivot toward multilateral trade systems seems motivated by a desire to strengthen its economy and restore international faith in its intentions. However, it is unclear whether other states, particularly ASEAN member states, will be the main beneficiaries of China’s pledge to open its markets for increased trade and imports. What is clear is that President-elect Biden’s US administration will not accept China’s gains at the expense of US economic and strategic primacy. In this regard, other states may have to prepare for more tensions from the US-China rivalry before reaping the benefits of the RCEP.


Hien Phan is currently a PhD student in Politics and International Relations School, University of New South Wales (UNSW). Her research aims to explore how Southeast Asia state leaders’ strategies of enhancing domestic legitimacy influence their states’ ASEAN regionalism policies. She also takes part in a number of young leaders’ organisations such as the Pacific Forum Young Leaders Program, Young Professionals in Foreign Policy and UNSW ASEAN Society.