Trade
Middle power conundrum amid US–China rivalry
Author: Shin-wha Lee, Korea University
The international community has faced an unprecedented social and economic shock due to three ‘big bangs’ — increasing US–China strategic competition, the fourth industrial revolution and the COVID-19 crisis. These three big bangs are interrelated and pose important challenges and consequences for world trade, regional stability and the future of the liberal international order.
First, the US–China trade conflict and strategic competition that began in earnest in 2018 stemmed both from a sense of crisis within the United States about China’s unfair trade and industrial espionage and from the rapid economic growth, advanced technological development, and strengthening military power achieved through them.
Faced with an increasingly vulnerable global supply chain stemming from COVID-19, countries rushed to reorganise their supply chains to strengthen security. As the link between technology and security became more important, the US enacted a ‘Special Act on Semiconductors’ and hastened the ‘internalisation’ of the semiconductor industry. The reorganisation of China-centred global value chains is restructuring the world economy and trade. The United States and other developed countries are abandoning offshoring to China to cut costs and instead are reshoring, nearshoring or ally-shoring them. The trend of shifting value chains away from China is based on the judgement that leadership in advanced technology is the only means to maintain strategic hegemony.
Second, the pandemic confirmed that the postwar world order is unravelling. Although the global organisations and norms that have led international affairs and the economic order for the past 75 years are still in place their practical role and binding force are waning. It is unlikely that new organisations and norms will emerge to fill the gap, and the great powers show no sign of global leadership. Instead of cooperating to combat the pandemic, the United States and China aggravated mutual distrust and antagonism. The relative decline of the United States and growing international distrust of Chinese leadership has created a ‘G-Zero’ era, in which the existing global governance centred on major powers has reached its limits and there is increasing instability and uncertainty.
Third, while the United States and China both advocate multilateralism; the two nations have different strategic goals, methods and approaches to its implementation. In their strategic competition, they are each mobilising multilateralism as a tool for mutual exclusion. US President Joe Biden has criticised Donald Trump’s ‘America First’ policy and declared alliances and multilateral cooperation as his top foreign policy priority. But at the heart of Biden’s multilateralism, much like Trump’s, lies the separation and containment of China. This reflects how the United States cannot cope with the rise of China by itself. Beijing criticises Washington’s multilateral approach as ‘closed and exclusive’ and seeks to empower anti-Quad solidarity by strengthening traditional North Korea–China–Russia relations. Along with Iran, Beijing aims to construct a ‘coalition of sanctioned states’.
The accelerating US–China confrontation is forcing middle powers to re-evaluate their strategic positioning. In the international realm, middle powers protect the interests of small and medium-sized countries, providing a third ground in which to weather the storm of great power competition. Should a middle power choose either side, it risks retaliation or exclusion from the other — the limits of the strategic base and capabilities of middle powers are now clear.
Cooperation among democratic middle powers is important, because they share norms, values and rule of law to set economic and technological standards that help counter China’s unfair and predatory behaviour. However, in relations with China, there are ‘temperature differences’ among many of the United States’ middle power allies. What if they are ‘like-minded,’ but not quite ‘like-situated,’ when considering their respective national interests and priorities?
Australia, for example, cites its close relationship with United States and Europe as an important reason to move towards greater solidarity with the United States. That middle power seems determined to defend its values and norms and abandon China despite strong trade retaliations. How then to explain Germany and France, equally traditional democratic allies of the United States, and…
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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