Trump’s right: Beware China
When it comes to global trade, actions speak louder than words
These are weird times. In Washington, the putative leader of the free world, in accepting the plum post, pledges to “protect our borders from the ravages of other countries,” which “will lead to great prosperity and strength.”
Does that sound to you like something a Communist dictator might say? Well, you’re in the wrong century, buddy.
“We must remain committed to developing global free trade and investment … and say no to protectionism,” said the leader of the world’s largest Communist country last week. “Pursuing protectionism is like locking oneself in a dark room.”
So we have Donald Trump, in his inauguration speech last Friday, unabashedly vowing protectionism for the United States. And we have Xi Jinping — in the first ever address by a Chinese president to the World Economic Forum in Davos, Switzerland — talking about China like it’s a standard-bearer for free trade. What gives? Well, it’s easy to read too much into politicians’ speeches, but for my part, I think we should take Trump at his word. His protectionist impulses will have at least some bad impact on Canada. We’re at minimum in for reignited disputes over things like softwood lumber, and might face a border tax or tariff regime that will do our economy no good.
In that context, getting freer with China looks like a tantalizing option. Our federal government last fall began exploratory discussions toward a free trade deal, and Xi’s speech might be just the opening to start ramping up those efforts.
You buying it? Should Canada take Xi at his word? I’ll date myself here, but this is one of those things that make you go “hmmm.” If Canada plows ahead with talks, we should reserve plenty of skepticism.
Granted, China has come a long way since its accession to the World Trade Organization 15 years ago last December. Its export boom is well known, but it’s easy to forget how dramatic the boom has been. Three years after joining the WTO, China supplanted Japan as the world’s third-largest exporter; by 2007, it was No. 2, ahead of the United States; by 2014, it had taken over Germany’s No. 1 spot.
But it hasn’t just been one-way trade. In the first decade of China’s WTO membership, merchandise imports increased nearly as much as exports — about 300 per cent. American exporters have benefited, too: between 2001 and 2015, U.S. exports of goods to China increased by 505 per cent, and exports of services grew by more than 800 per cent. (That’s according the Office of the U.S. Trade Representative in a report to Congress on China’s WTO compliance, delivered this month.)
So it’s not inaccurate to say trade with China is freer than it used to be, and that has paid dividends. But freer isn’t free, and China is still a long way from being a market economy. Xi came to power in 2013 promising pro-market reforms, yet as China has struggled with slowing economic momentum, it hasn’t done a lot.
As the USTR points out, subsidies, export restraints and investment restrictions continue to favour state-owned enterprises. A pledge to clear out essentially bankrupt (and overproducing) zombie companies has been slowed as credit has expanded. There are a still host of restrictions on access to the market in services. Intellectual property rights are often observed in the breach. There is little corporate or government transparency. The rule of law hardly lives up to western expectations — China’s chief justice recently called the idea of judicial independence an “erroneous influence from the West.” And so on. China’s answer to these issues, insofar as it acknowledges them, is that each country’s path to liberalization should be unique to its level of development.
Against the Trumps of the world who claim the playing field is uneven, China will say there can be no comparison between it and the United States, a fully developed economy.
In short, real free trade with the world’s second economic superpower would be a good thing. By all means, Canada (and the U.S., too, though it’s unlikely, to say the least) should take Xi at his word and pursue it.
But as the saying goes, time reveals one’s true character. When it comes to trade liberalization with China, we now have 15 years’ experience watching how words and actions don’t always line up. We shouldn’t ignore that lesson.