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The U.S. Shouldn’t Let China Take the Lead on Trade

28/05/2021    29

However loudly U.S. politicians vow to compete with China, they seem happy to quit the field and let Beijing win in one crucial area: trade. If President Joe Biden hopes to build a coalition in Asia to counterbalance China’s rise, he can’t afford such defeatism.

U.S. allies such as Japan are especially eager to see the U.S. join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — the 11-nation free-trade agreement that in its original form was intended to cement U.S. ties to Asia. Yet administration officials continue to dodge questions about the deal. At the same time, according to Bloomberg News, China has begun exploratory talks on its own possible accession.

China probably wouldn’t be asking if the U.S. were a member of the pact. The CPTPP has strong rules on subsidies, data flows, and labor and environment protections. Membership on those terms would require China to undertake far-reaching reforms, addressing several of the main concerns about its trading practices. The U.S. would have been able to block China’s entry if it didn’t trust Chinese pledges and could have held Beijing to account if it subsequently flouted the rules.

The CPTPP’s current members, on the other hand, may have less inclination or ability to resist Chinese pressure. The text leaves wiggle room for China to maintain some of its trade-distorting practices, such as its generous support for state-owned enterprises. Perhaps other countries could be persuaded to sign side deals giving Beijing longer to comply. China would be the group’s biggest member by far; smaller countries would have a hard time policing violations. And, by the way, China could veto future U.S. entry if it chose.

Any Chinese accession is probably years away — but that doesn’t mean the U.S. can afford to stand pat. Ignoring its partners in the region feeds doubt about the U.S. commitment to Asia. Countries that want to reduce their economic dependence on China are less likely to try if the U.S. isn’t offering an alternative.

If the U.S. decides to confront allies over supposed currency manipulation or other alleged trade violations, its support in the region will shrink even further. Meanwhile, the losses for U.S. workers and companies will compound. Joining the original Trans-Pacific Partnership would have added an estimated $130 billion a year to U.S. gross domestic product by 2030. 

Biden is clearly reluctant to antagonize his party’s left wing. But he could present new talks as a way to promote a progressive trade agenda. Some of the provisions in the original deal that so irked activists — including protections for pharmaceutical companies and a dispute-resolution mechanism for investors — have been dropped. The administration could press for other changes, such as those adopted in the U.S.-Mexico-Canada Agreement to protect labor rights. A new chapter to support green technologies and ban fossil-fuel subsidies is feasible. 

Japan and Singapore, the CPTPP’s rotating chairs for this year and next, need to know that White House is serious about balancing China’s interests. Other members of the CPTPP can then focus on the revisions required for the U.S. to join. An updated pact would set global trade standards; strengthen U.S. relationships; improve U.S. competitiveness; and benefit American workers, companies and consumers.

Together with domestic policies to promote innovation, growth and widely shared prosperity, liberal trade is a force for good. If Biden and congressional leaders are serious about raising living standards and keeping ahead of China, they need to act.

Source: Bloomberg