Bringing China to the Table

Sumner La Croix, Blogs, Economy

Radio Australia Interview: Implications for Pacific Countries  

1. U.S. PRESIDENT OBAMA AND CHINA PRESIDENT XI ARE MEETING IN CALIFORNIA THIS WEEKEND. WHAT’S AT THE TOP OF THEIR AGENDA?

Security issues will surely be number one, with three issues dominating:

  • Cyber-security: Big U.S. concerns about cyber-attacks on U.S. government and industry computers.
  • North Korea: Its unstable behavior and how a collapse of the N. Korean state and an ensuing humanitarian crisis could be resolved.
  • Potential ways to diffuse and resolve territorial disputes with neighbors peacefully.

Economic issues will also be extensively discussed and the outcome of these discussions could well have significant implications for countries in the Pacific region.

2. WHAT ARE THE MAIN ECONOMIC ISSUES THAT COULD AFFECT PACIFIC COUNTRIES?

The big issue from the Pacific perspective is whether China is invited to join the Trans-Pacific Partnership regional trade talks. The talks are focused on liberalizing trade relationships in the Pacific region and currently include the United States, Australia, New Zealand, Brunei, Chile, Peru, Canada, Malaysia, Vietnam, Mexico, Singapore, and—maybe very soon joining them—Japan.

Exclusion of China from a regional trade agreement seems unwise, when China is in the region and is now or likely to soon become the largest trading partner with each of these countries. Whether or not China would be willing to join the talks now is somewhat problematic as it may not be willing to go along with some of the main features of the TPP framework, such as stronger intellectual property rights, standardization of regulations, arbitration of disagreements between states and foreign investors, liberalization of trade in services, among others.

However, providing a mechanism for allowing China to join the TPP over the next five years would be very beneficial to the Chinese leadership, as it would provide them with some international justification for continuing to pursue market-based economic reforms at home.

3. OK, PERHAPS CHINA WOULD GAIN FROM ENTERING THE TPP, BUT WOULD PACIFIC COUNTRIES ALSO GAIN FROM CHINA’S ENTRANCE?

The answer is a clear and ringing YES. Increased trade within the TPP framework will generate gains for China AND the countries with which it trades.

But increased trade with China also comes with economic and political costs. The economic cost is that there is increased pressure on a country’s industries that compete with Chinese imports. The political cost is that increased international trade generates increased political tensions. with losers lobbying more to restrict the trade.

The trick for all Pacific countries and leaders is to minimize these costs of integrating China into the world economy. It’s a difficult task but one with potentially huge rewards.

– Sumner La Croix

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