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China Seeks to Shape World Trade To Its Own Tastes

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China’s strategic maneuvers to reshape world commerce on its own terms stand as a testament to its ambitions and foresight. At the heart of Beijing’s initiative is a clear pivot away from the established World Trade Organization (WTO) framework, which has been marred by escalating frictions between China and the West, towards a China-centric network of bilateral and regional free trade agreements (FTAs) that underscore its intent to foster closer ties with the developing world. This shift not only reflects China’s adaptability to the changing economic landscape but also highlights its efforts to insulate itself from the influence of the United States and to some extent, the European Union.

According to Financial Times and authors James Kynge and Keith Fray, the genesis of this strategic pivot can be traced back to China’s accession to the WTO in 2001, a moment marked by divergent expectations between China and the U.S. While the U.S. envisioned China’s integration into the global trade system as a step towards political reform and economic liberalization, China perceived it as a challenge to its socialist values and sovereignty. Over the years, this initial friction has only intensified, leading to a significant realignment of China’s trade strategy.

Central to China’s alternative trade architecture is the Belt and Road Initiative (BRI), a colossal infrastructure and investment program that has woven a vast network of economic ties across Asia, Africa, and Latin America. Through the BRI, China has not only expanded its influence but has also laid the groundwork for a series of FTAs that facilitate trade at reduced tariffs and encourage direct investment flows. These agreements, encompassing 28 countries and territories that account for nearly 40% of China’s exports, represent a strategic effort to create a fallback system should the WTO’s liberalized trade mandate unravel.

The urgency of constructing this alternative system stems from the growing apprehensions about the durability of the post-World War II global trading system, exacerbated by the U.S.’s imposition of hefty tariffs on Chinese goods under the Trump administration. This, coupled with the breakdown of the WTO’s dispute resolution mechanism, has propelled China to accelerate its FTA strategy under the leadership of Xi Jinping, who has emphasized the need for a more open and inclusive environment for development.

China’s FTA network, which significantly contributes to its export volume, underscores its role as a leading global exporter. This network not only facilitates a substantial portion of China’s global trade but also highlights its strategic engagement with the developing world, a relationship that is deepening through investments and technological cooperation.

This realignment towards developing nations and away from traditional markets in the U.S. and EU is indicative of a broader shift in global economic power dynamics. China’s engagement, especially in high-tech manufacturing and infrastructure projects within its FTA network, is transforming the economic landscape of these regions, enabling countries like Malaysia and Indonesia to ascend the technological ladder.

However, China’s strategy extends beyond economics to encompass geopolitical imperatives, as evidenced by its negotiations with the Gulf Cooperation Council and its alignment with the African Continent Free Trade Agreement. These moves are part of a larger effort to pivot its trade further towards the developing world, leveraging its BRI connections and seeking FTAs wherever feasible.

Despite the ambitious expansion of China’s trade architecture, challenges loom on the horizon. Trade tensions with the U.S. and EU, compounded by concerns over industrial subsidies, pose significant risks to China’s trade aspirations. The unfolding scenario suggests that while China’s network of bilateral FTAs and the Regional Comprehensive Economic Partnership (RCEP) provide a buffer, they may not fully insulate it from the repercussions of these tensions.

But then again, perhaps China is preparing itself for war. ACZ analysts note that sanctions never really worked on Russia because Putin had been preparing for war for the previous 10 years. Putin knew how to divert his financial networks to China, he was able to secure alternate trade channels for his oil and he knew that China would become his pre-eminant supplier of goods. Perhaps China is preparing for the day that they invade Taiwan or pursue some other of their world dominating ambitions and want to be ready for world reaction.

Pretty clear what is going on…

https://www.ft.com/content/c51622e1-35c6-4ff8-9559-2350bfd2a5c1

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