Pacific Leaders Promise to Boost Free Trade

The leaders of the world’s three largest economies agreed on Saturday to continue to push for free trade. In Yokohama at the Asia Pacific Economic Cooperation forum, China, Japan and the United States apparently put aside their differences to warn against the dangers of protectionism.

President Hu Jintao vowed to keep China’s markets open and reiterated Friday’s G20 pledge to try to balance world trade. In Seoul, South Korea this week, the leaders of the world’s twenty largest economies agreed that major trade imbalances pose a threat to their recovery but they failed to reach an agreement on how to address the issue. Surplus economies as China and Germany were particularly hesitant to submit to an accord that might have forced them to change policy.

In the wake of the crisis, several industrialized countries, including France and the United States have promoted domestic industries considerably, bailing out automakers and, in the case of France, conditioning such a bailout on a promise not to outsource jobs. China stimulated its economy with a package nearly ten times the size of President Obama’s in terms of national income. Of the nearly $600 billion worth of investment, only a third was provided by the government however. More than $400 billion had to be raised by the private sector.

Along with stimulus measures which have failed to avert high unemployment and low investment rates, calls to “buy American” and criticism of allegedly “unfair” competition from China are heard ever louder in the United States despite President Barack Obama’s assurance that free trade will “create American jobs.” His administration’s failure to conclude the Korea-United States Free Trade Agreement in Seoul this week is not an encouraging sign however.

Obama also failed to persuade the Chinese to appreciate their currency to make American exports more competitive. The United States complain that China’s currency manipulation is largely response for its $227 billion trade surplus with the United States. Despite promises to gradually let the renminbi gain in value, China is unlikely to move on currency significantly, afraid that a sudden increase in the yuan‘s value would damage Chinese industries.

For the time being, the Chinese have reason to point at the United States’ own expansionary monetary policy instead as an attempt to drive down the exchange rate of the dollar and help American exporters. President Hu didn’t, publicly, but urged the international community to “oppose protectionism in all manifestations.”

On the sidelines of the APEC summit, the Chinese president held a brief bilateral meeting with his Japanese host, Prime Minister Naoto Kan who also met with President Dmitri Medvedev of Russia in private. Tokyo has been at odds with both Beijing and Moscow in recent months after a Chinese trawler collided with two Japanese coast guard vessels near disputed islands east of Taiwan and because of the Russian president’s visit to another disputed island chain north of Hokkaidō.

With Japan’s economy lingering in recession, Kan’s promise to further liberalize trade, over heavy protests from farmers who fear the loss of subsidies and protective tariffs, was notable. “We have to grow with the fast developing economies of the Asia Pacific,” he stressed. The prime minister previously announced tax relief for Japanese business in order to help his country recover.

Cameron Promoting Trade with China

While American president Barack Obama called for closer business ties in India this weekend, Prime Minister David Cameron visits China, leading a huge trade delegation in order to boost economic ties between the two countries.

Cameron is accompanied by his chancellor, George Osborne along with some fifty leaders in British business and education as part of a two day trip to China.

Writing in The Wall Street Journal, the prime minister praised China for its remarkable economic growth in recent years. Now the second largest economy in the world, “a strong relationship with China is plainly in Britain’s national interests,” he professed.

There is a strong strategic fit between our economies. China is a key export market for Britain. And as China rebalances its economy and its growing middle-class demand new and ever more high value goods, brands and services, so British companies have much to offer.

More than forty specifics agreements on trade as well as cultural and education initiatives are expected to be signed between Britain and China while Cameron is in the country. Deals already agreed include £750 million for Rolls-Royce to supply and service jet engines for China Eastern Airlines and the construction of fifty new English-language schools by Pearson. But it is “the breadth of sectors and the range of companies involved that is most promising of all,” according to Cameron. “Many small- and medium-size enterprises from Britain will be expanding into China in areas such as low carbon growth, urban design and information and communication technology.”

There is more to economic cooperation than bilateral trade however. “Both Britain and China have a huge stake in expanding global trade.” On the eve of the G20 summit in Seoul, South Korea later this week, Cameron promised to try to advance the World Trade Organization’s Doha trade round “that has frankly gone on for far too long. Next year has to see the deal done, and that means action now.”

Future world free-trade agreements are currently behind held up by opposition from many developing countries which complain that through subsidies, the West is protecting its markets against agricultural exports from the rest of the world.

The prime minister’s visit is also a chance to reaffirm political cooperation between China and the United Kingdom. “As China’s star rises in the world, so does its stake in global stability,” according to Cameron, “in the political stability necessary to keep trade routes open and energy supplies flowing. That is an interest we share.”

China, Taiwan to Sign Free Trade Accord

China and Taiwan are expected to agree to a preliminary free-trade agreement later this month in a effort to normalize relations across the Strait after more than six decades of bickering and mistrust.

According to The Economist, the proposed Economic Cooperation Framework Agreement (ECFA) calls for cuts on 539 categories of Taiwanese exports to China over the next two years with scope for more to follow. The paper describes the agreement as “the cornerstone of the China-friendly policies of Taiwan’s president, Ma Ying-jeou.” Critics allege that the president’s foreign policy is geared toward ultimate reunification with the mainland.

Following Ma’s election in May 2008, relations with China rapidly improved. His government allowed regular charter flights to take place between the two countries to bring in Chinese tourists and it eased restrictions on cross-Strait investments.

Taiwan is hoping that the ECFA deal will herald its future inclusion in international free-trade arrangements; something China has so far opposed and prevented.

Last January Beijing initiated a free-trade accord with the member states of ASEAN; the Taiwanese exports included in the ECFA are from some of the industries most threatened by that agreement. The Taiwanese government is likely to try to reach similar arrangements with nearby Southeast Asian countries in an effort that will boost the economic integration of the region and decrease the likelihood of future conflict.

The opposition has reason to be suspicious though. While Taiwanese negotiators did not get everything they asked for, “the terms of the deal still seem remarkably sweet for Taiwan,” according to The Economist.

The 539 categories of Taiwanese exports are worth $13.8 billion, while Taiwan in turn will reduce tariffs for only 267 categories of Chinese exports, worth $2.9 billion. What is more, China has gone beyond its World Trade Organization requirements by dropping tariffs on various Taiwanese agricultural and fishing products, and Chinese negotiators said they would never push Taiwan to return the favor.

“China’s largesse is clearly political.” Beijing prefers Ma’s moderate Kuomintang over the more independence leaning Democratic Progressive Party while it has to cope with an Asian naval race and mounting tension in the region. As Robert Kaplan wrote in April, China feels “boxed in,” particularly from the sea, where it faces a chain of nations from South Korea to Japan to the Philippines to Indonesia and Australia, with implicit backing from across the Pacific, which are watching China’s rise with skepticism — indeed, sometimes outright fear.

In order to address that perceived threat from the high seas, Beijing is preparing to envelop Taiwan “not just militarily but economically and socially,” according to Kaplan.

Amid high unemployment figures, Ma’s popularity is slumping however. “Economic success has not trickled down to many Taiwanese,” knows The Economist, “and for them the ECFA is an abstract idea of frighteningly radical engagement with China.” Ma will have to prove to his voters that the China deal will benefit Taiwan directly before the presidential elections in 2012.

China and ASEAN Become Free Trade Block

The Bund of Shanghai, China, May 1, 2009
The Bund of Shanghai, China, May 1, 2009 (Flickr/IceNineJon)

A free-trade agreement between China and the ten member states of the Association of Southeast Asian Nations (ASEAN) has come into effect last January 1, liberalizing trade and investment in an economic zone that is home to almost two billion people.

After the European Union and NAFTA, this new free-trade area is the third largest in the world and perhaps the most significant today for many of the countries involved, China foremost among them, are carrying the rest of the industrialized world out of the economic recession that has plagued it throughout the past year or so. Read more “China and ASEAN Become Free Trade Block”

Labor Laws Hindering India’s Growth

“Deadly labor wars hinder India’s rise,” wrote The Wall Street Journal last month. In spite of Prime Minister Manmohan Singh’s efforts to reform India along free-market lines, the country’s long history with socialism continues to keep it from truly embracing capitalism.

Battle lines are being drawn in labor actions across India. Factory managers, amid the global economic downturn, want to pare labor costs and remove defiant workers. Unions are attempting to stop them, with slowdowns and strikes that have led at times to bloodshed.

Workers are so passionate because they feel that India’s newfound prosperity has hardly made their lives any better. Companies blame union leaders for enflaming such discontent for political reasons while decade-old labor codes are in desperate need of reform. “We can’t be a capitalist country that has socialist labor laws,” says the president of the Automotive Component Manufacturers Association of India.

India’s economy has experienced a steady 8% growth rate during the past several years. Its middle class had widened and its domestic consumer base, in both cities and the countryside, has grown with it. But the country’s manufacturing sector, after producing an impressive growth rate of 7 percent until last year now feels the effects of the global turndown and must make some unpopular cutbacks. “The unrest serves as a reminder that India has far to go before it stands alongside the world’s other economic powerhouses,” according to the Journal.

Thomas Barnett shares this sentiments and adds that that other rising power, China, has very much the same problem, “for all the same reasons plus the added burden of heavy corruption.” No matter how fast both countries have grown over the last decade, they still have to do away with the remnants of socialism to clear the path to becoming economic giants.