The Trans-Pacific Partnership: A Gentle Push for Chinese Economic Reform

Imagine a Cold War raging between China and the U.S., with economic containment policies, arms races, and proxy conflicts popping up all over the world as these giants vie for superiority.  Such a situation may be unimaginable for the post-Cold War generation, but the recent Trans-Pacific Partnership (TPP) has some speculating about just that. The TPP, a free trade agreement that finished its final negotiation stage in early October, includes eleven economic powers in the Pacific with the notable exception of China. As the world’s second largest economy, the U.S.’s largest trading partner, and the Pacific economic superpower, China’s absence from the U.S.-led partnership raises some eyebrows. A major objection to the TPP is that the U.S. intentionally excluded China from the pact as a form of economic containment. While the TPP certainly hurts China marginally, its exclusion of China does not constitute containment: it is a free trade agreement, and China is not yet a free economy.

The partnership, pending ratification, promotes free trade by reducing or eliminating more than 18,000 tariffs among the eleven countries: the U.S., Australia, Canada, Japan, Malaysia, Mexico, Peru, Vietnam, Chile, Brunei, Singapore, and New Zealand. It is questionable whether the TPP will even pass through Congress. However, the TPP was a U.S.-led initiative since its conception in 2005. From an American perspective, one purpose of the agreement is to try to reclaim some American economic influence in Asia. President Obama, commenting on the finalization of the TPP, emphasized the need for the U.S. to not “let countries like China write the rules of the global economy.”

Similarly, on the official website of the Office of the United States Trade Representative, the TPP states that the “rules of the road are up for grabs in Asia. If we don’t write those rules, competitors will set weak rules of the road… undermining U.S. leadership in Asia.” The “competitor” for influence in Asia is obviously China, and the official rhetoric implies that the U.S. wants to prevent China from instituting its own rules. These statements are a little ambiguous because the aim of the TPP is to not allow for “weak,” presumably trade-limiting rules; the TPP may be limiting China’s economic influence not to contain China’s economy but to promote free trade. If this is the case, it is simply an incentive for China to free up its own economy, and many U.S. scholars endorse this interpretation.

Experts argue that it is the closed nature of China’s economy and domestic politics that precluded it from being part of the partnership. The requirements and provisions of the trade were not compatible with Chinese economic policies while the TPP was being negotiated; Beijing could not accept limitations on the number of state-owned enterprises, the permission of workers to unionize and collectively bargain, and the attack on digital censorship and localization.

Even Japan, with its much freer economy, had to undergo massive changes to accept the TPP. Professor Graham Webster, a Fellow at the Yale Law School China Center, noted that Japan had enormous difficulty in being admitted to the TPP in 2013 because it refused to reduce its heavy tariffs on rice to accommodate the treaty’s existing provisions. Given Japan’s history, he remarked, “[China] would have to have been ready to sign on to those areas of the TPP that would have been settled.” China, he argues, was not excluded; it simply wasn’t ready.

The TPP’s intention, if not containment, is to incentivize China to free up its own economy in response so that it could partake in future free trade organizations. China is too big to be contained anyway, and the U.S. and world knows it. “China is hugely vibrant and growing economy,” explains Webster. It would be counterproductive for the U.S. and other TPP members to try containment against a powerful economy with which they all trade so much. A major win would be scored by the American economy, particularly imports, if China allowed for freer trade. The TPP seeks to nudge China in that direction without provoking it. “The balance won’t be upset,” says Webster. China stands to lose GDP in exports as other nations’ goods cheapen with the tariff reductions, but those losses will not be alarming.

The American intention, though, matters little to the bureaucracies of Beijing. The Chinese General Secretary’s perception of the TPP will determine its response. Currently, the Chinese Communist Party has issued very little except neutral statements with regard to the TPP. However, public and media opinion on the matter seem to be more charged. Tony He, a Chinese student at the Yale School of Management, believes the TPP is bad news for China. According to his reading of the agreement’s provisions and the local Chinese media, he says, “Some articles [in the TPP] target China and are articles that China would disagree with.” The effect, he remarks, is a higher barrier of entry to the partnership. He points specifically to the articles requiring freedom from censorship and the elimination of state-owned companies.

If China truly feels compelled to counteract this pressure, it could try to bite back at the U.S. economy by strengthening some of the other trade organizations it has been planning, such as its Regional Comprehensive Economic Partnership (RCEP) with several other Asian countries—but this partnership is much weaker than the TPP. China has also been planning the One Belt, One Road program, which seeks to create a modern Silk Road with land and maritime trade routes by building railroads through Central Asia into Europe and trade posts on the rim of the Mediterranean. This initiative would allow China’s economy to penetrate the European market, weakening U.S.-European economic linkages. While these programs could sting the U.S. economy, all of their effects will probably happen anyway—not due to perceived containment, but due to the eventual opening of China’s economy.

China Ministry of Commerce seems to have acknowledged the TPP’s incentives. Edward Wittenstein, Director of Yale’s International Relations & Leadership Programs says that although Beijing has issued no official statements concerning joining the TPP, “A lot of the reforms China is planning, in terms of its domestic economy, would gradually make China’s economy more compatible with international trade groupings.” Even joining the TPP is a possibility for China. Webster speculates that a bilateral treaty between the U.S. and China is possible by 2020 given the right conditions. Beijing has also renewed negotiating many Free Trade Agreement Partnerships (FTAPs) with countries all over the world, a move that aptly shows desire for a freer economy.

“The gravitational pull of China’s economy is greater than any trade organization,” concludes Webster. Even if the U.S. Congress ratifies the TPP, it will not erode U.S.-China relations in the future because both nations stand to lose too much by antagonizing each other economically. The TPP has the exciting possibility to strengthen ties between the U.S. and China if China frees its economy as planned, ushering in the very opposite of a Cold War: an age of warm cooperation between superpowers.

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