Trade
Economic distancing from China and the world would carry heavy costs
Author: Shiro Armstrong, ANU
The health and economic crises from the coronavirus are unlike anything the world has experienced since the Great Depression and Second World War. The global community is at risk of repeating the mistakes of the 1930s and undoing the foundations of lasting peace and prosperity that were forged in the ashes of that war.
The world needs more globalisation to overcome the COVID-19 health and economic crises, not less. There’s little doubt that developing a vaccine and eradicating the virus will require a global effort in cooperation, collaboration and coordination, even if those qualities now seem in short supply. This effort is the key to economic recovery, too.
Two related forces gathering momentum in many countries will make the world poorer, weaker and less secure.
One is economic nationalism: to bolster onshore production, put up barriers to foreign investment and shorten supply chains to the point that they avoid crossing borders. That’s the North Korean model of eliminating risk in international economic engagement. The other force is to decouple or drastically reduce dependence on the Chinese economy. The distinction between the two is not as clear-cut as the proponents of the latter want to believe. Free trade that excludes China is not free trade.
Producing masks, hand sanitisers and ventilators to top-up imports during a global shortage makes sense. Restricting exports of that equipment to other countries, as many are already doing, makes no sense at all if critical domestic needs have been met. Shortages won’t be filled by imports when others are also restricting exports.
Supply chains that are concentrated onshore are more vulnerable to other kinds of shocks. A natural disaster or home-grown crisis could wipe out whole industries. The best insurance against drought or crop failure in one part of the world is openness to supply from producers all around the world. The key is to manage supply chain risk, not to avoid it.
More supply chains run through China than any other country, as it’s the low-cost ‘factory of the world’ at scale. That gives China a huge stake in the established open, rules-based multilateral system, even if some in China don’t understand that and act otherwise. Chinese policymakers intervening in international markets increases the cost of doing business with China for the rest of the world. Beijing knows that the credibility of its commitments to the global economic order is central to maintaining living standards and, therefore, social and political stability. Reminding Beijing of what China has at stake and engagement in the protection and expansion of rules will reinforce the rules-based order to everyone’s benefit.
China owes its prosperity to participation in this order. Had it not made and largely abided by the commitments it gave to the WTO in 2001, it could never have become the dynamic, globally interconnected economy it is today. For either Beijing or its trading partners to risk undoing these accomplishments by turning away from the institutional order that delivered them prosperity would be a huge mistake. It is not a matter of trust but one of self-interest in binding and enforceable commitments.
Mutually beneficial trade and investment create real stakes in partner countries that help to constrain some of the worst impulses of national leaders.
High trade shares with China are not a liability but evidence of success. Government policy shouldn’t aim to diversify away from that success but to ensure proper international governance is maintained to manage it. The key is to manage the risks from economic engagement, not to avoid them, including with China.
The public debate in Australia, and elsewhere, about reducing dependence on the Chinese economy has been turbocharged by the breakdown in trust between Australia and China in the context of US–China strategic competition and the fight over the narrative around the COVID-19 pandemic.
Governments can intervene in the market to slow or stop business with China, as President Trump has done. The Japanese government has allocated 220 billion yen (US$2 billion) in subsidies to onshore production and a further 23.5 billion yen (US$219 million) to strengthen supply chains with Southeast Asia. These measures are largely aimed at reducing dependence on the Chinese economy. Yet it’s not clear how this corporate welfare will stop companies from selling to the Chinese market or investing further in China. Policies that might be effective in reducing interdependence will come at…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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