International

American Free Trade: Atlantic, Pacific and China

by Brendan Storer

Pacific Leaders

The pursuit of free trade deals by the Obama administration with the European Union and the countries of the Pacific Rim, notable omitting China, is evidence of a weakening engagement by the Obama administration towards China. Instead the US continues to show a predilection for strengthen the American position in opposition to Asian development. Compounding this disengagement, Obama has also instituted a Trade Enforcement Unit to investigate unfair trade practices, notably singling out with China. These actions by the US government show an increasingly standoffish approach by the Americans toward their falling economic power relative to the rising Chinese economy. The US is particularly providing an edge to its own economy while downplaying China’s involvement. There is also indication of the pursuit of a degree of disintegration between the United States’ and Chinese economies emphasising an American dislike for economic dependency even where mutually beneficial.

The Chinese government’s unfair backing of Chinese companies against US companies has provoked a suspicious and largely hostile response from Congress. Congress’s restriction and overview on travel by government employees to the People’s Republic can be seen as a measure to ensure a single approach to China by Congress. However Congress has cunningly used the President’s purview of foreign affairs as insulation shielding them from culpability for hostility while implying any US-China disputes are Obama’s responsibility.

Free trade has now been a long term guiding principle of US economic management. Pursuing free trade agreements in North America, Latin America and individual countries in the Middle-East have strengthened American engagement and business interests in these areas. Alongside the negotiation of the Trans-Pacific Strategic Economic Partnership with the Asia-Pacific Region, the Transatlantic Trade and Investment Partnership will be the largest expansion of America’s free trade capacity. This liberalisation could be used as a much needed boost to Economic growth in the US and the struggling Eurozone. Through the implementation of the free trade agreement American exporters will reduce costs due to only having to comply with the new standard rather than both domestic and foreign ones. Other non-exporting producers in the United States could use the simplification and lowered cost provided by the Trans-Atlantic Trade and Investment Partnership (TTIP) to begin exporting to Europe. Personally, and perhaps in search of an international legacy, President Obama has tied himself to the success of this through announcing its pursuit as part of the 2013 State of the Union Address.

The TTIP would be a key international agreement linking half the world’s trade and more than half world GDP into free trade bloc. The general friendship between the US and the EU countries would be strengthened and both economies will benefit from access to each other’s markets more freely. However the decision has been seen as a counterweight to China by balancing American ties to Asia with a renewed integration of American and European markets. The size of the involved economies in the TTIP requires heavy participation from a number of Departments and Agencies from the United States and the 27 countries of the EU. Such bureaucracy is likely to complicate the process with individual concerns about their own goods and services at both a national and departmental level. The US Commerce Department, especially through its agency the International Trade Administration, will be closely involved in acquiring more favourable conditions for American manufacturers and exporters. With the US and EU being the two largest consumer markets in the world, opening each other up for trade will generate significant market scope for businesses on both sides. That the EU is already America’s largest trade partner with $647 billion in trade passing between them in 2012 emphasises the importance of this trade channel.

The cultural affinity that America shares with Europe and does not with China creates a natural fit for closer economic ties. No slight to China but shared history of liberalism and liberalised trade across the Atlantic, not to mention a common language with major EU the UK, counts for much when considering economic activities. The lack of uniformity in the EU especially between Western and Eastern Europe threatens to compromise progress on the deal.

Labour movements are often vocal about the pursuit of free trade agreements, emphasising the need to retain domestic jobs through resistance of outsourcing by companies seeking lower wage climates. The AFL-CIO in its role as protector of American workers continues to take a stance of strong disapproval of both China’s trade practices and their perception of the ineffectual efforts of the government to address and correct the distorted trade balances. The AFL-CIO further oppose the economic practices of China because of the unjust employment and industrial practices that Chinese firms routinely use with low wages and little collective bargaining power. Efforts by the competing Change to Win Labour movement to bridge the gap with Chinese manufacturing workers have met with some success  but the size of China’s workforce and the institutionalised labour mechanism in China make an impact large enough to impact the trade balance of the US and China still a long time off. Labour problems would appear to be a lesser concern with the TTIP given that high wages are already present in Europe however the AFL-CIO has expressed concern over the labour standards of Eastern European countries within the EU notably Romania, Bulgaria and Slovakia. Encouragement from the rest of the EU to shore up standards and the relatively small labour impact the TTIP will have on the American economy will soothe fears about outsourcing and US job loss especially for the parochially, district, minded members of Congress.

Closer to Asia, the Pacific Ocean is providing the theatre for the other major trade agreement pursued by the United States. The Trans-Pacific Partnership is being built around the 2005 P4 trade agreement amongst Brunei, Chile, New Zealand, and Singapore. This trade agreement has become a proverbial bandwagon with first the United States then, Australia, Vietnam, Peru, Malaysia, Mexico, Canada and Japan entering into negotiations. There is however a tentativeness being shown by the United States confusing the problem with the solution. The US is taking a worrisomely hard line on the issue of intellectual property rights. This is a position come to through decades of souring by the ‘pirated copy’ and ‘knock-off’ industries of South-East Asia but there are concerns this could sneak SOPA-esque measures into not only American law but Australian and other Pacific nation’s body of law.  Part of this hesitancy is cultural differences but a larger part is history based stemming from bad American blood in the region. Vietnam particularly, long a point of contention for America, has become a sticking point with that country’s de jure socialist government and less than perfect labour standards record has discouraged the US from ‘rewarding’ the socialist state with a free trade agreement. The ego shown by the US aside, isolating nations has never proven effective for encouraging improvements in conditions within less-industrialised nations. Instead it should be seen as a heartening development that free trade is poised to connect the countries of the Pacific. Earlier this year China said the broadening of the expanding P4, was part of an insidious US scheme to curtail China from reaching global ground but since the inclusion of Japan in the negotiations China has softened its rhetoric even to the point of expressing its own interest in joining the trading bloc. Such a move by China may run interference for the similarly interested Taiwan. The turn-about favour now shown by China remains uncharacteristic of the People’s Republic. China has in the past shown a penchant for bilateral negotiations rather than en-bloc negotiations and the change in approach may be a reversion to a China more willing to play by international norms.
On the subject of bilateral US-China relations, the attitude of the US government has increasingly been one of improving the US-China trade balance to be more in favour of the United States and, a more humanitarian goal; the improvement of the Chinese working conditions and wages rates. The United States pursuit of improved trade practices with China has been patchy with small successes backed by the World Trade Organisation. However the recurrent blaming of the US trade deficit only on Chinese currency manipulation and trade practices ignores the US’s complicity in the accruement of the trade deficit. The trade deficit is the US buying more from China than selling to China. Given that China isn’t going to increase its demand of US made goods, if the Americans want a better trade balance they need to stop buying so much from China. The US insistence of blaming China solely for the conditions of America’s trade balance with China is biased away from American culpability in the matter. The Chinese impact on other currencies, especially others in Asia, is unaddressed in American rhetoric. The low value of the Chinese Yuan has discouraged other Asian exporters such as Taiwan and Thailand from appreciating their currencies against the dollar for fear of losing competitiveness against China. This hurts America’s trade balances just like China does directly by causing cheap Asian products in America and expensive American products in Asia. The simplification that occurs in public discourse of topics has trimmed this issue and instead focused on the root cause of China’s monetary policy.

The continual distaste for the rise of Chinese trade practices reinforced and used demagogically by the rhetoric of politicians has continued to obscure the economic realities of the relationship. This resistance of simplicity by the general discourse has not proven especially helpful for the pursuit of resolution of the issues America holds with China. However, the unannounced, low-level work that has been pursued by successive Democratic and Republican governments continues to seek readdressing of the relationship with some slow steps in the right direction for American jobs and the American economy emerging over time. The resolution of the problems and the removal of the Chinese support structure for its economic agents will not be achieved overnight or in the course of one Congress or Presidential term. The continual engagement and firm attitude towards a better trade relation with China is how the relationship will improve in America’s favour. Until then, China is likely to continue to be used as a political bogeyman for any politician or aspirant to gain populist points and an appearance of international scope of opinion.

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