One word will dominate the virtual meeting of the Group of Seven nations later this week and it begins with a capital “C.”
China will be at the forefront of talks between the government heads of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Senior officials from the European Union will also be at the video summit.
Top of the agenda along with the Covid-19 pandemic will be China’s growing economic might and its state-sponsored trading practices.
To combat this, US President Joe Biden will advocate reform of the World Trade Organisation, which now has a new director-general in Ngozi Okonjo-Iweala, the former Nigerian finance minister.
“President Biden will discuss the need to make investments to strengthen our collective competitiveness and the importance of updating global rules to tackle economic challenges such as those posed by China,” the White House said in a statement at the weekend.
- China is the world’s second-largest economy. It has replaced the US as the European Union’s largest trading partner.
- Total trade volume hit €586 billion or US$711 billion last year.
- EU bilateral trade with the US was €555 billion.
- In December, the EU announced a multi-billion-euro trade accord with Beijing known as the China Comprehensive Agreement on Investment.
- The deal still has to be ratified by the European Parliament in Brussels.
- Criticism of the agreement is becoming louder among European MPs.
- The sheer scale of China’s state-backed manufacturing output not only poses a problem for G7 nations.
- It also threatens to “consume” Asian-Pacific countries that joined the Regional Comprehensive Economic Partnership or RCEP last year.
Biden’s challenge: “The WTO [World Trade Organisation] is at a moment of crisis where it may quickly drift into irrelevance if significant reforms are not agreed upon. The importance of reform is underscored by the need to have a comprehensive set of rules on China’s non-market practices that can be enforced multilaterally,” Clete R Willems, of the Atlantic Council’s GeoEconomics Center, wrote in a commentary for the Washington International Trade Association.
China’s position: “As Jake Sullivan, the national security adviser to the US president, has emphasized, America will embrace a “new economic philosophy.” [This indicates] that the Biden administration may be less interested in free trade, and more preoccupied with “protecting” the American people,” Zhao Minghao, of the Charhar Institute in Beijing, said on the China-US Focus website last week.
The Asia Question: China last year agreed on a free trade deal with 14 Asia-Pacific nations, including, Australia, Japan, New Zealand, Singapore and South Korea. The other nations involved are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam. The trading bloc accounts for about 30% of the world’s population and $26.2 trillion or 30% of global GDP. “[But] they may discover that the dragon they sat down to dine with is so big that it eats all the food,” William Bratton, the author of China’s Rise, Asia’s Decline, wrote in a commentary for Nikkei Asia in January.
China Factor comment: Even though it is now an economic superpower, China still retains its “developing economy” status with the WTO. In part, this is due to the lack of a regulatory framework and is based on the “good faith” of individual members. President Xi Jinping’s ruling Communist Party has exploited the loophole, pointing out that it has a “fundamental right” to receive “preferential treatment.” At the same time, China has used its state-backed economic muscle to pressure other countries and silence critics of the Party’s appalling human rights record. Unless the world stands up to the “dragon,” the WTO could go up in flames.