But Trump’s four years in office changed the political underpinnings of US foreign economic policy. The rise of populism and protectionism alongside partisan politics may have undermined the base for a return to the free trade policy approach of previous administrations.
Biden has declared his government will focus on a middle class-centred foreign policy and a trade policy that will serve the American workers’ interests by promoting equitable growth. Though the Trump administration planned a ‘new Cold War’ with China, the Biden administration won’t necessarily follow the same approach, instead concentrating on trying to compete with China by outperforming it.
China has chosen a different trade strategy from the increasingly inward-looking economic policies of the United States. In response to Trump’s trade war, China announced a succession of unilateral measures to open up trade and investment. Foreign investment in China has subsequently increased significantly.
China and 14 other countries in the Asia Pacific successfully negotiated the Regional Comprehensive Economic Partnership (RCEP) in November 2020. With its ratification and implementation, intra-regional trade will grow and the region is likely to become the world’s largest free trade area. In December 2020, Chinese and EU leaders announced the completion of negotiations on the EU–China Comprehensive Investment Agreement, that they expect sign this year. Chinese leaders have also declared their active intent to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
In the midst of US–China geopolitical competition, China has continued to accelerate trade and investment liberalisation, driven by both security considerations and its domestic reform agenda. The question is whether these Chinese strategies can help revitalise the rules-based international trading system and push back against global economic fragmentation.
China has opted for strategies that continue to open up its markets and to integrate its economy with those in Asia and the Pacific and Europe, despite the momentum there has been against globalisation in the United States. China’s commitment to RCEP, the European investment agreement and to seeking higher standard agreements opens a path for progress with partners including the United States to strengthen the global trade regime.
China is now the largest trading partner of almost all Asia Pacific countries. Trade between China and Europe has surpassed that between the United States and Europe. This economic interdependence helps to alleviate global tensions and potentially buttresses the open international trading system.
RCEP will facilitate more open, free and transparent trade in the region. The total number of goods traded under zero tariffs will exceed 90 per cent. Commitments to liberalising trade in services covers most service sectors and are more significant than previous agreements between ASEAN and other parties. The participants have adopted negative list approach to foreign investment in manufacturing, agriculture, forestry, fisheries, mining and other sectors, and the transparency of policies has significantly improved.
The EU–China Comprehensive Investment Agreement will promote China’s institutional opening-up. It marks the first time that China has made commitments in the form of a negative list in all sectors — in both services and non-services — and also requires full implementation of the negative list system for foreign investment under China’s Foreign Investment Law.
China and the European Union have reached consensus on competition issues related to business operations, including state-owned enterprises, subsidies, technology transfers, standards-setting, administrative law enforcement and financial regulation. The agreement has special provisions on environmental and labour issues related to investment, contributing to the effort to achieve the UN Sustainable Development Goals and protecting the environmental and labour rights. These commitments make China a more attractive business destination and international partner.
Together these two agreements signal significant change to China’s business environment and investment and trade management system. They bring domestic standards closer to the international bar and deliver more openness in the global economy. They serve as a model to some extent for negotiations for other emerging economies in the multilateral system, making compromise and progress more likely in future WTO reform.
In China, this is all part of a strategy to promote ‘dual circulation’, which stresses the domestic market for economic growth but also builds in international openness and connection to global markets. This model is a defensive response to growing uncertainties in the trade regime.
As a force for economic globalisation and an active contributor to the global trade system, Beijing is looking to the Biden administration for a positive response. As the world’s two largest economies, China and the United States share a common responsibility to build and strengthen the international trade rules.
Wang Yong is Professor in the School of the School of International Studies, Director of the Center for American Studies and Director of the Center for International Political Economy at Peking University.