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INSIGHTS into the WORLD / U.S.-China trade talks to sway world order

By Akihiko Tanaka / Special to The Yomiuri ShimbunOn May 3-4, a U.S. Cabinet-level trade delegation including Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and other senior officials visited Beijing to hold talks with their Chinese counterparts. Reports emerged that their meetings made no tangible progress, as the Americans demanded that China massively reduce its trade surplus with the United States while the Chinese remained adamant that their country was ready to take retaliatory action against U.S. exports to China.

As a result, concerns have grown that U.S. President Donald Trump’s administration will tilt further toward protectionism and that a possible trade war between the United States and China could profoundly affect the world economy.

It’s true that the Trump administration’s stance of handling trade issues through bilateral negotiations is problematic. However, it should be noted that the recent U.S.-China talks were not just a round of bilateral trade negotiations between Washington and Beijing, but a session on the greater issue of shaping the world order in the 21st century. At the core of the matter is the rise of China, and the real issue is what kind of China would be acceptable to the world.

During the two-day talks, the U.S. side reportedly demanded that China stop giving government subsidies to projects chosen to implement the “Made in China 2025” strategy, which aims to upgrade China’s key industrial sectors and turn that nation into a global manufacturing giant. The U.S. demand seems to be a terrible example of interference in the internal affairs of another country. Does this, too, reflect the Trump administration’s extraordinary policies?

To date, debates on “the rise of China” have been focused on whether the rise will proceed peacefully. China would presumably say the “Made in China 2025” initiative is not a military strategy but a blueprint for peaceful development and, therefore ask: “What’s wrong with it?”

A decisive change occurred in China from the autumn of 2017 to spring this year. Speaking as general secretary of the Communist Party of China in the party’s 19th National Congress held in October, Xi Jinping, repeatedly using the words “strong power,” boasted that the Chinese model for development — “socialism with Chinese characteristics for the new era” — can serve as a model for other developing countries to achieve modernization.

In March this year, members of the National People’s Congress (parliament) voted on a constitutional amendment eliminating a two-term limit on the presidency to enable Xi to stay in power indefinitely as president. In other words, through those developments, he declared to the world that China under his leadership is to promote its economic development while strengthening the authoritarian regime under the Communist Party’s one-party rule and spread that model to the rest of the world.

There have been some cases of remarkable economic growth among countries that are not very democratic. Singapore is well known as one of the world’s richest countries in terms of gross domestic product per capita. But such cases have thus far been limited to oil-producing countries or relatively less populated countries. As such, it has been impossible for their economies to affect world industry, or for them to ever influence the security and order of the world significantly.

Control by Orwellian country?

Today, China is the world’s second-largest economy. If the “Made in China 2025” strategy is realized, it is likely to stand at the forefront of the world in almost all advanced technological fields of the 21st century, such as artificial intelligence (AI). What, then, will happen if world industry is controlled by an Orwellian country where freedom of speech is not protected, the limit on presidential terms has been removed and facial recognition technology is used across its territory to centrally control information about its population?

What I just described can be called the fears that have prompted the Trump administration to make its demand regarding the “Made in China 2025” initiative. Indeed, Beijing seems to be trying to make China’s authoritarian development model prevalent all over the world. China continues to extend assistance even to countries that have come under international criticism for human rights abuses, without attaching political conditions. What will happen if Alibaba, Tencent and other Chinese internet companies dominate developing countries’ cyberspace and give China all the information they gather in those countries? If this occurs, China will be poised to extend the areas under its influence without bothering to use military force. Once China’s influence becomes widespread all over the world, freedom and democracy may be suffocated.

By these assumptions, I mean that even if development efforts are “peaceful,” the world order will be greatly affected and those who think a liberal democratic order is desirable for the world will feel threatened when they see China’s political landscape remaining as it is now while consolidating its authoritarian regime and continuing to grow.

So what should we do under such circumstances?

First of all, it is indispensable to hammer out a framework for fair economic competition with China. Up to now, it has been pointed out that China’s regulatory environment for investments has been structured only to favor Chinese companies, that it has done little to protect intellectual property rights, resorting instead to illegal means, such as cyber-attacks, to steal information from foreign entities. Further, China imposes certain protectionist barriers — it has kept its door shut to Google and other foreign internet companies and obliged foreign businesses operating in China to store data in servers installed in locations within the host country.

The Trump administration’s approach to Beijing for bilateral trade negotiations includes questionable demands from the perspective of economics such as demanding China to decrease its bilateral trade surplus with the United States by artificial means. Additionally, if the administration wants China to agree to a fair market environment, the United States should join hands with Japan and the European Union, among other trading partners, instead of going it alone, in pressing the Chinese side. Participating countries in such a multilateral approach should ask China to accept and comply with a variety of international trade and investment rules as set forth in the Trans-Pacific Partnership (TPP) agreement. Especially in this regard, the right path is the United States’ return to the TPP, followed by joint negotiations with China with the involvement of the EU.

Defense of democracy

That said, however, I am afraid that given the fast speed at which the world economy is now moving, the world does not have much time to wait and see what will happen next in negotiations with China. If the United States is ready to negotiate with China to resolve such issues as regulations on inward investments, intellectual property rights protection and information control in particular, Japan and the EU should support the U.S. effort.

Certainly, a country that seeks corrective steps from a trading partner on the basis of reciprocity runs the risk of triggering protectionism. However, as long as China’s trading partners remain hesitant to raise legitimate demands to China out of fear of a trade war, no fair competition environment is likely to be realized indefinitely.

Nonetheless, China is hardly expected to stop providing government subsidies to the projects relating to the “Made in China 2025” initiative, even if it is asked to do so. Moreover, China’s manufacturing and innovation capabilities will advance even if a relatively fair competitive environment is in place. Against this background, liberal countries have no choice but to enhance their competitiveness to the extent that they can stay as competitive as China. The United States, EU member states and Japan must reinforce their technology development abilities. When Japan endeavors to increase its technology development ability, it ought to recognize that its efforts are not aimed just at contributing to the Japanese economy, but are decisively important for the defense of our freedoms and democracy.

As for official development assistance and outward direct investment, member countries of the Organization for Economic Cooperation and Development (OECD) need to implement them with a definite strategy that gives due consideration to political relations with developing countries and relations with China. In this connection, economic assistance to democracies such as India and Indonesia should be used to help boost their industrial capabilities. Likewise, authoritarian countries that have potential or are moving toward democratization should be actively supported. In contrast, it is advisable for OECD member countries to reduce economic assistance to developing countries that have definitely chosen to pursue the Chinese model for development.

I do not mean to suggest that anti-China diplomatic options should be immediately implemented. There are many diplomatic areas, such as the issues pertaining to North Korea’s nuclear and missile development programs, where China’s cooperation is necessary. Friendly relations with China have to be upheld by all means.

Even so, we must not forget that we will have no choice but to engage in a systemic competition if China opts to keep heightening its authoritarian inclination.

Special to The Yomiuri Shimbun

Tanaka is president of the Tokyo-based National Graduate Institute for Policy Studies (GRIPS), a post he assumed in April 2017. Previously, he was a University of Tokyo professor specializing in international politics. He was president of the Japan International Cooperation Agency from 2012 to 2015 and vice president of the University of Tokyo from 2009 to 2012.Speech

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