Trade patterns have changed dramatically in the last two decades. As the intensity of economic growth has shifted from the West to the East, and the emerging economies have accounted for a majority of global growth, regional trade agreements have proliferated worldwide, especially in Asia. One of the world biggest-ever free trade deals, the Trans-Pacific Partnership (TPP), led by the U.S., stretching across the Pacific, and connecting Asia with the West, involves 12 nations, which account for 40 percent of global GDP, 30 percent of of global trade and 25 percent of global imports, but conspicuously excludes one country: China. Initially, China denounced TPP as a major effort by the U.S. to contain China. However, recently China has started to express an interest in learning more about TPP and take a nuanced “wait and see” attitude. Since then, the debate has shifted to whether China should join TPP or not.
The exclusion from TPP does confront China with unavoidable costs and new challenges. According to economic modeling by Petri and Plummer, income losses to China from its absence from the TPP would be $46 billions by 2025, while the income gains to China if it joined TPP would be over $800 billions by 2025. Besides, the economists Li and Whalley also conducted numerical simulation to explore the potential effects of TPP, incorporating the trade costs in the general equilibrium model. The simulation results concluded that TPP agreement will hurt non-member countries, including China, by negatively impacting their production output, welfare level, trade, import and revenue. Such costs are mainly due to the diversion of trade and manufacturing from China to TPP members. Other than that, the lack of TPP membership would prevent China from enjoying new tariffs reduction and preferential market access.
Aside from the cause of economic costs to China, TPP also emphasizes the leadership role of U.S. in negotiating a new set of rules and obligations in Asia. It is likely to shift the economic balances and alliances within Asia, reduce Chinese economic predominance and limit China’s international expansion. So it seems that joining TPP is definitely a big deal to China.
For the most part, I agree with the scale and the importance of TPP and the challenges it poses to China both economically and strategically. However, several more views need to be taken into consideration when discussing to what extent China should care about joining TPP.
Firstly, China’s economic predominance in Asia is driven by its sheer size, continued growth, which is slower in recent years, but is still relatively faster than that of most Asian economies, and its increasing centrality in global supply chain. In other words, its prevailing status is hard to be shaken. Secondly, China has been deeply involved with most of the TPP members, either through bilateral or through regional free-trade agreements. Moreover, China has actively sought alternative paths to increase its influence, through projects under the “one belt one road” policy, or through its RCEP initiative, a parallel trade agreement that comprises 10 ASEAN countries plus China, South Korea, Japan, India, Australia and New Zealand. Thirdly, China has challenges within its own economy, which include massive urban migration, widespread unemployment, and huge wealth gap. And under current pressure of economic slowdown, China may not be ready for new and higher trade standards set out by TPP. For example, the TPP’s government procurement standards may drastically alter the structure and operation of Chinese State owned enterprises; the ecommerce standards could impair China’s censorship and information control policy. TPP may set as a new benchmark or force for the spur of China’s economic reform, but currently such reform may not happen over night. Last but not the least, TPP itself seems not as impressive as a trade-liberalizing agreement, since 6 members of TPP already have free trade agreement with U.S., which means that their improvement will be limited. Further more, inferring from the ACTA, negotiated between U.S. and the EU, which was adopted in April 2011 but still yet to enter into force till now, it is hard to predict when TPP will actually be ratified. In sum, so far, TPP’s impact on China is negligible, as is predicted by U.S. Department of Agriculture that the decrease in China’s GDP will only be 2%.
In the short-run, due to the current moderate impacts of TPP, China’s unshakeable economic preponderance in Asia, and the domestic challenges in China, China is likely to seek its favored free-trade accords other than TPP, and initially take a wait-and-see attitude to it. After all, it is still early to assess the implications for China. The Congress may hand Obama a defeat. And how big a deal TPP is depends on the actual implementation as well as the content of the deal.