Tea Leaf Nation
China Liked TPP — Until U.S. Officials Opened Their Mouths
Chinese were once eager to latch onto the massive trade pact as a lever for internal reform. But with harsh U.S. rhetoric rising, that ship has sailed.
After a brief but frightening setback for proponents, U.S. congressional leaders looked set on May 13 to pass legislation for an eventual up-or-down (“fast-track”) vote on what would be one of the world’s largest trade accords, the U.S-led Trans-Pacific Partnership (TPP). The accord, a project behind which U.S. President Barack Obama has thrown his full support, would originally join together 12 countries bordering the Pacific Ocean. Significantly, China isn’t on that list; in fact, in the months leading up to fast-track voting, U.S. officials have been selling the pact internationally and domestically as a deal to counter Chinese influence. But whether TPP becomes reality or not, China has already moved on. And the anti-China rhetoric the United States has deployed has ultimately done more harm than good.
TPP is more than just a trade agreement, at least to hear the Obama administration tell it. In recent months, U.S. officials seeking to win domestic support among skeptical Democrats have promoted it as a geostrategic cudgel to fend off a rising China. In an interview with The Wall Street Journal on April 27, President Barack Obama asserted, “If we do not write the rules, China will write the rules out in that region,” meaning the Asia-Pacific. “We will be shut out.” When Japanese Prime Minister Shinzo Abe met President Obama to discuss TPP, their explicit and implicit messages were “all about China,” according to Patrick L. Smith, a long-time correspondent in Tokyo.
By continuing and intensifying the anti-China rhetoric in TPP discourse, administration officials have only made it more likely that the trade regime, if it becomes reality, will alienate China.
None of this was inevitable. As recently as two years ago, China was nervous about being shut out of the TPP. Li Xiangyang, dean of the Global Strategy Institute at the Chinese Academy of Social Sciences, a top government-linked think tank, remarked in 2012 that “TPP represents the gravest challenge China faces” on its upward trajectory, given its popularity in Asia and its exclusion of China. Scholar Fan Libo also argued in an article published in December 2012 that “the benefits of joining TPP outweigh the costs for China.” In May 2013, the Chinese Ministry of Commerce announced that China would “assiduously study” the pros and cons of TPP. Then in March 2014, at the conclusion of China’s National Party’s Congress and National People’s Congress, an annual event that directs major policy moves, Minister of Commerce Gao Hucheng spoke to domestic and international reporters. “We think the TPP is an important negotiation, and also a high-quality trade regime,” Gao said. “China is always open and accommodating to regional cooperation.” He also made it clear that China was well-informed of TPP negotiations through Sino-U.S bilateral dialogue mechanisms.
When the United States spun the TPP as a high-standard trade regime, with its inclusion of rigorous labor and environmental clauses, it also resonated with those wishing to push China to reform. Long Yongtu, the former Chinese trade minister who negotiated the country’s entry into the WTO, argued in November 2014 that “TPP has to include China sooner or later.” Long and other reformists saw the TPP’s standards as potentially creating an external lever to, as Long wrote, “help China’s badly-needed reform in the state sector, labor, and environmental areas.” In November 2014, China announced a landmark climate accord with the United States. And the Xi administration has designated “deepening market reform” a top policy in the coming years – a fine fit for the TPP’s requirements.
In late 2014, moderate voices were supported by a set of serious investigations into how key terms in the TPP are likely to affect China. Researchers at Chinese universities and government think tanks concluded that China could manage the short-term costs that TPP would incur on their country, whether it joined or not. These include state-owned enterprises, supply chain manufacturing, intellectual property rights, textiles, exports, environment, and labor markets in China. The findings suggested that China could manage the costs via reforms in tax rates, expanding outbound investment, and reform in relevant legal and environmental regulations.
Of course, China was not going to wait for the United States to come around. Quietly, China began searching for new ways to bolster its influence in Asia. In late 2013 Xi publicly announced for the first time what he called the “Silk Road Economic Belt” and the “21 Century Maritime Silk Road,” comprising what was later known as China’s New Silk Road in Eurasia. Things have been moving fast since. In Kazakhstan, China has signed economic projects in the areas of trade, industry, energy, technology, and finance, totaling $23.6 billion. In Belarus, in addition to a massive Sino-Belarus Industrial Park, modeled after the Suzhou Industrial Park near Shanghai, eight Chinese provinces and seven localities in Belarus have signed development projects with each other. In Russia, China has just finalized 30 economic projects, with a total worth of around $20 billion.
China’s confidence in regional politics has also been boosted by its progress assembling the charter member ranks for its Asia Infrastructure Investment Bank, or AIIB. China proposed the AIIB in October 2013; a year later, 21 nations, all Asian, gathered in Beijing and signed the memorandum establishing the bank. Six months later, the membership has expanded to 57, including traditional U.S allies in the United Kingdom, Australia, and South Korea. Embarrassingly, U.S efforts to stop close allies like the United Kingdom from joining have failed.
With these recent successes in their proverbial back pockets, Chinese officials and scholars no longer care as much about TPP. Li Xiangyang, a dean at CASS who was deeply concerned about TPP two years ago, now spends most of his time promoting the Silk Road. The initiative is “diverse and open,” he said; in contrast, “TPP uses high-standards to exclude nations,” and is “not real openness.” Scholars also argue that TPP imposes United States-drafted terms on others. “It has too much politics,” they noted, “while AIIB was driven by market principles.” Of course, the future is critically uncertain. China has been generally silent as the TPP debate goes on in America.
There’s a lesson here for U.S. policymakers: there are profound merits to staking trade standards on solid policy grounds, as opposed to the very different terrain of realpolitik. When the U.S speaks for labor, environment, and small inventors, it attracts reform-minded Chinese who can do much of the internal sales job themselves. When it lards initiatives like TPP with geopolitical significance, it only pushes China to focus on the same.
After all the exhaustive back-and-forth on fast-track authority, the years of negotiation, and the recent, coordinated drum-beating about containing a rising China, the TPP may ultimately come to pass. But it’s too late to win hearts and minds in China. The world’s largest country has already moved on.