The United States, China, and Trade, Part I: Has China Got it Right and Are We Missing the Point?

I’ll be honest, before becoming involved in trade policy research a few years ago, if a newscaster on TV mentioned "free trade agreement", I couldn’t have flipped back to Sportscenter fast enough.  It wasn’t until I was neck deep in trade policy research, working on think tank research teams, that I realized how these agreements drill down to every detail in a country’s economy and affect why, where, how, when, and who we buy and sell things from.  Make no mistake, they affect your daily life.

During a recent trip to Hawaii, in between surf sessions at Diamondhead and the North Shore, I was able to catch up with some old colleagues and friends from the East-West Center and other Asia related organizations, many of whom are more than familiar with the policy goings-ons of Asia and the U.S.  Some of them have participated, at a very high level, in the development of trade policy in the PacRim for several decades.  Others are security and intelligence analysts, and others are businessmen that regularly work in Asia, like myself.

Consistent with what’s popular in the news today, many of the discussions dwelled on China and the U.S.  One of the overriding themes that I came away with was the observation that the U.S. has been rather neglectful, or perhaps better put, less strategic than our Chinese counterparts when it comes to developing trade relationships with other countries. 

In recent years, the Chinese have been much more active and successful in this area.  They enjoy an ability to approach free trade agreement negotiations in a flexible manner, sticking to easy trade issues that will have a substantial impact, offering considerable incentives to other countries, etc.  The U.S., in contrast, forces the hammering out of every issue and trade talks often falter entirely when difficult areas cannot be agreed upon.  Additionally, the U.S. has a lot on its plate right now and it’s not a secret that the U.S. has probably not taken enough interest in what’s taking place in Asia in general.

Yes, the U.S. signed an FTA with Singapore a few years ago, which was a promising move.  And now, the Korea-U.S. FTA has been negotiated and awaits ratification.  But China is doing much much more.  They are working with ASEAN (Association of Southeast Asian Nations) on trade liberalization and have already made substantial progress in opening up the trading of goods.  This, coupled with other efforts, is helping to push ASEAN +3, an initiative by Southeast Asia, China, Japan, and Korea, to develop a regional trading bloc, an initiative which the United States is noticeably not a part of.  Even India and other South Asian countries are moving to be included in this regional trade pact.  Instead, the U.S. pushes trade liberalization in the PacRim through either bilateral agreements (one-on-one country agreements) or APEC (Asia-Pacific Economic Cooperation) which provides little to none in the way of tangible results. 

And it’s not just in Asia that China is beating us to the punch.  Africa is also a continent where we may be noticeably falling short.  Take a gander at this press release recently issued by the Export-Import Bank of the United States.  According to the document:

China’s growing commercial presence in Africa, and low participation by
U.S. companies in the region, present critical challenges to U.S.
commercial interests, panelists at a meeting of the Sub-Saharan Africa
Advisory Committee (SAAC) of the Export-Import Bank of the United
States (Ex-Im Bank) agreed during a public forum at the Bank’s
headquarters here.

U.S. Export-Import Bank Chairman and President, Charles Lambright, noted:

China-Africa trade is growing much faster than U.S.-Africa trade. In
2006, China-Africa trade totaled $56 billion while U.S.-Africa trade
totaled $100 billion, of which $80 billion were African sales to the
U.S. In five years, total trade between China and Africa is expected to
reach $100 billion.

With recent rumblings in Congress creating a scenario in which FTAs will likely be more difficult to pursue in the near future, an irrational fear of China’s rise in defense and protectionist circles, and U.S. consumers’ angered by the quality issues of a few companies out of thousands, there is a lot of talk about returning to protectionism and erecting trade barriers to keep the U.S. competitive and keep China down.

I have to ask myself if we’re asking the right questions and seeing the whole picture in relation to trade and Asia.  Are we looking at the U.S.’ future from a strategic standpoint?  If we are, what’s our strategy–keep China down?  I do see quite a lot of anti-China sentiment out there. 

How did we become focused on a "keep China down" strategy rather than a "propel the U.S. ahead" strategy?  The problem occurs  when we are led to believe that one cannot be had without the other and then we start tackling the side of the coin (ahem…"keep China down") that is much easier to address because it is a more focused question and offers a great scapegoat. 

Is China employing a "take the U.S. down" strategy?  Hardly.  They’ve got a "make China glorious again" strategy.  Let’s ask the question: "if we’re not going to focus on keeping China
down, how do we propel the U.S. ahead?"  I’ll break the suspense: I don’t have all the answers.  But, I do have one
suggestion and it looks like we could steal a page from China’s book at
this point:  foster trade relationships through trade liberalization
with other countries.

One basic characteristic of the U.S. that has helped ensure our economic strength is our relative openness to economic competitiveness.  This has been fostered within the country since it’s inception.  But now, in a global world, competition has fewer and fewer borders and global competition, is in fact, global. 

Freer trade brings competition.  Competing means taking on all comers and this is the most effective way to realize the best in oneself.  Our industries need to go up against industries in other countries, which will force us to grow, become more efficient, and keep us on the cutting edge.  This does not come without it’s pain points.  But it’s necessary, or we risk losing ground entirely.  Trade liberalization opens the doors for competition and international relationships.  If China is doing a better job at this than us now, what does that mean for our ability to compete ten years down the road?