During a recent webinar hosted at the University of New South Wales (UNSW), several academic China trade policy experts discussed, among other things, how the economic conflict between China and the West is rooted in different political and economic models, and how resolving the conflict will require a better understanding of China in the West.
On August 20, the China International Business and Economic Law (CIBEL) Centre at UNSW Sydney hosted a webinar on "China and International Trade Regulation in the Post-Pandemic Era." The webinar was organized by Weihuan Zhou of UNSW, and featured Professors Bryan Mercurio (CUHK), (Michael) Ming Du (Durham), and Qingjiang Kong (CUPL).
Some key points made by the panelists were:
· Early on in the trade war, China was actually quite scared, but has emerged from the trade war feeling very confident. Therefore, China is not going be a pushover in any negotiations.
· To China, trade can no longer be separated from broader diplomatic relations.
· Decoupling is not an option.
· The idea that countries will group together to try to take on China is a fallacy.
· Two questions are important: What can we do to make China agree to changes? And what will China want in return?
(Michael) Ming Du:
· The current controversy about China is in essence a conflict of two fundamentally different political and economic models. We traditionally conceptualize international economic law as providing an interface where different political and economic models can somehow smooth over their differences and coordinate their trade and economic relations. But now, in the new era, it's clear that the rule of international law in solving the problems at hand is minimal.
· China will actively promote its reform agenda, which had been raised three years ago. And it will uphold the multilateral trading system as it understands it.
· It's very natural for China to align with the developing countries to change or to more forward the reform. And that's why it has been very consistent in supporting the special and differentiated treatment of developing countries.
A partial transcript of the event is below.
My title ... is frenemies in the time of global uncertainty. What is a frenemy, for those who don't know, right? It's somewhat of maybe a friend and an enemy, maybe something in between, maybe sometimes a friend, sometimes an enemy. And it seems to me that in terms of trade relations with China, ... whether it be US or EU or Australia or others, this is where the relationship has headed. ...
So what I'm going to do, because of limited time, is actually kind of put my conclusions first. ... So it's kind of an introduction, assumptions and conclusions all mixed here. And my assumption, I suppose, or starting point, is that the current root of the trade friction between China and the US, and the West really, is not new, that in fact, it dates to China's accession. There were issues in China's accession to the WTO that, to me, were not resolved, that were bound to resurface, and really resurfaced in a big way under President Trump. But I'm saying that these differences were not really new under Trump or Obama, but really deep seated differences that through time have revealed themselves.
The second point there, I think, is that China, we know certainly relied on the WTO norms and dispute settlement, in order to solidify its model of growth, its export oriented model of development. And of course, it built huge trade surpluses doing so. It seemed to me that early on in the trade war, or as things were heating up between Trump and China, that China was actually quite scared, I think, of losing, or worried of losing, the WTO, or losing dispute settlement and what a trade war would do to it. Now, that being said, I think China emerged from that trade war feeling very different, feeling very confident. And in fact, now believing it negotiates from a position of strength. The US threw really all it had at China, and China was resilient and actually strong and came out of it in a decent economic position.
Now, why is that important? It's important because in future WTO negotiations, China negotiating from a position of strength will matter. I think China is not going to be bullied. And when you hear people in Washington and maybe to a lesser extent in Brussels saying China needs to do this, and China needs to do that, and these rules need to be changed. The question that's going to surface is, why would China agree to that? And if they do, what would they want in return? So I think it's really important to establish now that China is operating from a position of strength, stronger than before the trade war, in my view.
So what that also says is, and it kind of leads from what I just said, China is in no rush to establish or reestablish WTO predictability. It is not going to take any offer just to to get WTO predictability back. Sure, it wants MFN. Sure, it actually benefited from WTO principles. Unpredictability is not good for growth or for any trader, including Chinese. But the fact is, I think, again, China is not going be a pushover in any negotiations. And I think from my view, it's fine with that position, now, of uncertainty at the WTO instead of, of course, just taking any of the new rules that the US and EU would want to force upon it.
I think also what we see is the West viewing China as increasingly mixing trade with part of larger diplomatic, economic and strategic relationships. Essentially, we can call this economic statecraft, that the Western view, and I think it's probably right, is that to China, trade can no longer be separated from broader diplomatic relations. And there's a lot of consequences to come from that.
Now, what that means for, you know, Australia and others is that we have to be willing to accept, or at least just to, we have to accept that there is going to be uncertainty in trade for the next few years. And there's going to be a lot of trade diversion.
I don't think decoupling is an option. I think when governments talk about this, they forget the fact that, in fact, it's companies, mostly private companies, who trade who embed themselves in supply chains, etc. While it's very easy to say, we should decouple and establish this here or there, in practice, and at the firm level, very difficult to do, and maybe doesn't make economic or strategic sense to do it.
That being said, for third countries sitting back and watching, certainly not the best option. They have to react, and they have to do something and I'll come back at the end. To say what, in fact, that could be.
What can countries do? I guess I'll just say trade diversion is occurring. ... As trade frictions are rising, we see trade diversion. I could have picked 15 different products involving Australia and China trade. I just put up the nice one with coal.
I think the idea that countries will group together to try to take on China is a fallacy. There really is no grouping together. So in a dispute, I think countries cannot expect others to back them. It's going to be very difficult for a government to say to a farmer, don't send your goods to China because they did something to the US that we don't like. I think that's going to be, actually, it's just not in the realm of possibility. And I think China knows that.
So what can countries do and firms do? What I conclude by saying is, unpredictability is going to remain for some time.
A return to the WTO is some years away. And it hits on that point I made with the first slide. China is not simply going to take what the West and Japan put forward.
So we have to look at two things. What can we do to make China agree to changes? And what will China want in return? We have to understand that and I think actually from a Western point of view, I don't think Western countries understand that, I don't even think they're asking the questions. Almost everything I see coming out of Washington and Brussels is simply they need to change, but not the why or the how can we can we do that?
Second point I already said basically, I think this idea of a NATO for trade or an alliance is not realistic.
Third, if your countries, play the game, and companies, secure as many market access opportunities as possible. But don't assume these are permanent. Encourage diversification -- I know that's easier said than done. Because as we see, when trade conflicts happen, diversion will happen. So we can't assume those gains are permanent. Continue domestic reforms, try to usurp leadership as a middle power like Australia, actually, now is the time, I think, that they can have a greater role in influencing high quality FTAs and niche agreements, trying to influence the US, EU, Japanese position, etc. I think again, sitting back and watching is not an option. Plan, move, be prepared for a bumpy road, but be in a position to try to take advantage of the chaos which will ensue.
(Michael) Ming Du:
Now the new narrative is China has benefited enormously from integration into liberal international economic order, but contrary to what the West had anticipated, China has not shifted to market economy and the rule of law, and China has selectively chosen those international norms which will help its economic growth and preferred by its political elites, but at the same time resisted economic and political reform in the larger agenda, larger reforms. Now, and also at the same time, China has used its Belt and Road and Made in China 2025, to spread its authoritarian features.
Now, let's reflect on these two contrasting narratives on the impact of international economic norms on state change at domestic level. And we asked the question, what was wrong, and the wild ideas on the interaction between international norms and the state of change have shifted so drastically over a very short span of time, we are talking about less than one decade. Now, with the benefit of hindsight, it's easy for us to blame politicians back 20 years ago as too naive, because you can base a very important policy decision on some wishful thinking. But again, that criticism is not fair. Because if you think about it, that thinking just that I described, because the policy, the person who made over the past 20 years was based on very distinguished thinking across the different disciplines in social sciences. Now, first, it goes like this, saying that both WTO law and international investment law, they represent a new liberal paradigm we have because of how it works, the system has shifted from embedded liberalism, to a liberal term since 1980s. And then the WTO membership, and the investment treaties, are therefore channels through which those neoliberal thinkings and good governance will be transferred to China.
And for a state like China with a long history of official intervention to all walks of life, and the neoliberal paradigm challenge the core ideas of the role of government in society. And therefore, the introduction of China into the neoliberal economic system is a part of a larger strategy of economic and political reform. So in the end, international economic law, we are not we will not only boost trade but also increase accountability and also individual rights.
Now, to conclude, the current controversy about China is in essence a conflict of two fundamentally different political and economic models. We traditionally conceptualize international economic law as providing an interface where different economic and political models can somehow smooth over their differences and coordinate their trade and economic relations. But now, in the new era, it's clear that the rule of international law in solving the problems at hand is minimal.
Now, then, let's see, what is the prospects of China's behavior in international rulemaking? In general, I think it can be anticipated that China will work hard to maintain the existing multilateral trading system with the WTO as the center. The WTO trading system, the world trading system, provides China and other countries with a fair, reasonable and a transparent economic environment. I think this is something that China is clearly aware of. For the country, any change towards the international rules and trade rules will be made on the basis of a current WTO system. China will actively promote its reform agenda, reform proposal, which had been raised three years ago. And it will uphold the multilateral trading system as it understands. Of course, the country will have its own assessment of overall international configuration. And I think it will have take into account of its capacity. Therefore, it's very natural for the country to align with the developing countries to change or to more forward the reform. And that's why it has been very consistent in supporting the special and differentiated treatment of developing countries. And that's what it's doing is supporting and augmenting the voice and representation on developing countries. And it's calling for democratization of international relations in a trade context.
China status as a developing country, particularly China's status as a market economy, has often been questioned, and the country sees it as a special form of discrimination against self. On the other hand, China has noticed the US and its allies have been doing what it takes to contain China. And a new word has been used in this regard, that is so called block by rules. So US is deploying international trade rules, and particularly in the regional trade agreements.