Wednesday, September 3, 2008

Guess who’s afraid of free trade

Guess who’s afraid of free trade
Filed under: General
Posted by: site admin @ 9:04 am

Last week Dr Dan Steinbock, Research Director of International Business with the ICA Institute, began commentaries in China Daily, China’s leading English-language daily, which is distributed in over 150 countries and regions. Please find enclosed the new release, “Guess who’s afraid of free trade,” (China Daily, May 14, 2008). It is based on some conclusions of his recent study in China & World Economy. “During the past eight years, Washington has engaged in unilateral security policies,” Dr Steinbock concludes. “If the next administration engages in unilateral trade policies, global prospects for security and prosperity will erode even more. What the White House truly needs is a decisive, prudent and cooperative political leadership.”

In the past, Dr Steinbock has contributed to the Beijing Review and several Chinese academic journals. He is also on the board of two leading Chinese scientific journals.

Guess who’s afraid of free trade
By Dan Steinbock (China Daily)
Updated: 2008-05-14 07:30

In the post-World War II era, the United States was the champion of global trade, overseeing the creation of much of the infrastructure of the multilateral world order. But times are changing.

According to recent surveys, Americans are now most skeptical about the growing trade ties between countries, whereas the Chinese hold the most positive views on global trade.

This dramatic reversal is reflected in the increasingly critical views of US presidential campaigns on global trade in general and trade with China in particular.

Since the normalization of US relations with China in 1979, Washington and Beijing have cultivated cooperative policies. After the 1990s, these policies have been under increasing scrutiny and debate, reflecting the US push toward unilateralism in and accelerating friction in US-Chinese trade relations.

Between 2001 and March, 2008, China’s foreign exchange reserves soared from $216 billion to an estimated $1.68 trillion. But China is not the largest holder of the US securities. Last February, this list was led by Japan ($587 billion), followed by China ($487 billion), the United Kingdom ($181 billion) and Brazil ($147 billion).

In 2007, US imports from China amounted to $322 billion, about $10 billion more than from Canada. But trade is a two-way street. The US exports to China have grown rapidly to $65 billion. China is now the third-largest US export market, larger than Japan and ranking behind Canada and Mexico.

As for the US-Chinese Direct Investments, in 2007, China maintained its position as one of the world’s top destinations for foreign direct investment (FDI), with overall FDI inflows totaling $82.7 billion. The United States is only the sixth largest investor in China, behind Japan and Singapore. Despite their overall support for free trade, Democratic contenders are critical of globalization, offshoring and free trade agreements (FTAs).

Senator Hillary Clinton’s emphasis on “America’s middle class under siege” goes hand in hand with retreat from free trade, which will be difficult to link with multilateralism in foreign policy. In turn, Senator Barack Obama has expressed concern about trade agreements that do not include labor and environmental protection. He would amend the North American Free Trade Agreement (NAFTA), whereas Clinton has pledged to renegotiate NAFTA.

Clinton believes that China’s economic impact on the US is causing a “slow erosion of our own economic sovereignty”. She co-sponsored the Foreign Debt Ceiling Act of 2005, which would compel Congress to impose limits on US foreign debt.

Clinton has urged Chairman of the Federal Reserve, Ben Bernanke, and Secretary of Treasury, Henry Paulson, to “reduce Chinese-owned debts”. She would also consult the International Monetary Fund (IMF) to pressure China.

Both Clinton and Obama have adopted an increasingly critical tone on global trade and support legislation that would allow US companies to seek anti-dumping duties on Chinese imports, based on the perceived undervaluation of the Chinese currency.

A Democratic president might work with the Democratic majority of the Congress, led by the Speaker of the House, Nancy Pelosi, a vocal supporter of the “Free Tibet” movement.

Like the Democrats, the leading Republican contenders favor more emphasis on diplomacy and multilateral engagement.

Unlike Democrats, the Republicans support free trade. Senator John McCain is one of the strongest advocates of free trade in Capitol Hill.

McCain argues that the stage for a Pacific-wide effort to liberalize trade will be set by free-trade agreements (FTAs) with Malaysia and Thailand. These FTAs will realize the potential of the new trade agreement with South Korea and institutionalize economic partnerships with India and Indonesia, while building on existing agreements with Australia and Singapore.

McCain believes that China and the rapidly developing nations of Asia are growing into stronger economic competitors. His economic and trade policies are designed to improve America’s global competitiveness.

Unlike the Democratic contenders, McCain supports increasing global integration. He has urged Americans to reject the “siren song of protectionism” and embrace a future of free trade.

However, even the Republican president would have to cooperate with the Democratic majority of the Congress. He would also face strong internal opposition. Along with the “human-rights wing” of the Democrats, the evangelical conservatives of the Republican Party are antagonistic toward China.

In 2007, for the first time, China - not the US - became the single most important contributor to world growth. Together, the US and China fueled nearly half of global growth, as measured by purchasing power parity.

Among the presidential candidates, there is a strong bipartisan consensus on the importance of US-Chinese relations in the 21st century. But the two major parties take a very different view in terms of the strategic goals of the US-Chinese relations.

Clinton and Obama agreed to co-sponsor legislation that would levy punitive duties on Chinese goods. In contrast, McCain embraces global economic integration, which he believes can reinforce national security.

During the past eight years, Washington has engaged in unilateral security policies. If the next administration engages in unilateral trade policies, global prospects for security and prosperity will erode even more.

What the White House truly needs is a decisive, prudent and cooperative political leadership.

The author is the Research Director of International Business at the India, China and America Institute

(China Daily 05/14/2008 page 9)

China Daily, established in 1981, is the only national English-language newspaper in China. The average daily circulation is more than 200,000, one-third of which is abroad in more than 150 countries and regions.

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