The PRC and “Free Trade:” Playing the Game Their Own Way

By Danny Lam

Historically going back to the origins of agriculture, a recognized authority to protect economic activity have been an indispensable part and parcel with the rise of civilization.  Economic activity from hunter gatherers onwards all have to have security, stability, predictability, and certainty.

Thus, trade beyond a minimum level have always been between “friends”, or at least, primarily between those who are not active enemies.

When the world economy transitioned from mercantilism to capitalism in the late 19th early 20th Century, empires sought to provide preferential treatments to their “own” through mechanisms like “imperial preferences”.

The notion that “free trade” is good came about during the Great Depression when protectionism ultimately deepened economic woes, which may or may not be responsible for WWII.

Post War economic institutions like the European Economic Community have been crafted to undermine autarky: economic independence or self-sufficiency with the express aim to prevent war.  The argument is that interdependent countries cannot go to war against each other.

Trade was thought of as a pacification tool. It was the express aspiration of the Europeanists to see economic integration “bleed” into political integration and in the process, banish the evil of European wars forever.

Likewise, the GATT, predecessor to the World Trade Organization, was conceived of as an institution not just to capture the benefits from trade predicted by liberal economic theory, but implicitly, to dampen conflict and support a broader group of like minded nations beyond allies.

At first, it was the US that supported European and Japanese recovery and reconstruction with aid and trade – defined as preferential access to the US market. As Europe and Japan recovered, and East Asian wars ended, economies that are US allies like Singapore, Taiwan, South Korea, Hong Kong, etc. jumped on the bandwagon and became very successful.   There are exceptions, like the Philippines and Indonesia that had the opportunity but failed to make much of it.

The peak of this policy was the opening to China by President Nixon that initially, did little, but by the 1990s after the exhaustion of the first round of Deng reforms, ignited economic growth first along the southern Chinese coast, then throughout China that created the China we know today.

Along the way, the People’s Republic of China, a communist regime that is officially dedicated to the destruction of capitalism and western powers, was admitted to the World Trade Organization in 2001 after negotiations that began in 1986 under GATT after the initial gambit that “they never left” failed.

There were many considerations for this glaring exception to admit a major communist regime.

Leaving out a major economy and trading power (assuming no trade embargo by the west) would undermine the world trading system.

It would also prevent Taiwan (another major trading power) from being admitted.

Thus, geopolitical considerations were pushed aside and for the first time in the modern history of “free trade” institutions, an exception was made to allow the PRC – a sworn enemy with an incompatible non-market economy – to accede to a club for rules based market economies.

The belief by liberal internationalist is that trade will eventually undermine Beijing’s communism, and increased prosperity and openness to the world will ultimately lead to political reforms and ultimately, democracy and a stable team player with substantial stakes in the international system.

Certainly part of this can be seen to be true, but there are more than one pathway that the PRC can follow. One of whom is to have the PRC substantially remain enemies of the west, and yet taking full advantage of the openness.   The PRC is in effect, undertaking Lenin who reputedly said: “Capitalist will sell you the rope you hang them with”.

The critical issue facing the international community is that the PRC is at once, the world’s largest trading economy, and at the same time, actively undermining the Western dominated institutions for international security, stability and peace necessary for commerce.

It can no longer be taken for granted that the PRC is “becoming more like us” or “on the path to economic or political reform.”

The PRC is actively reshaping international norms and institutions, not just as a major player and benign (non military) partner asserting their interests with the aim to support and sustain international order, but as a heavily armed peer competitor that have geopolitical goals no different from Germany, France, Russia, Britain, Japan, and the US in the 19th Century to upend international order and replace it.

What is more, the Beijing regime is at once, throwing their weight around and at the same time, powerless to control their powerful local governments and military theater commands who, with or without Beijing, are pursuing policies or acquiescing to behavior that are destabilizing the entire international system in a range of issue areas from arms trade, predatory trading practices, intellectual property piracy, to narcotics trafficking.

To name a few, PRC’s longstanding relationship with Pakistan and North Korea that transformed them into nuclear armed powers with a dangerous “hair trigger” arsenal.  Pakistan, in turn, became one of the world’s most vigorous proliferators of nuclear weapons knowhow until the Khan network was shutdown.

Similarly, the “sea grab” of South China Sea and the massive military buildup is undermining the freedom of navigation in one of the most intensely travelled trade routes of the world.

The Beijing regime of China, pay next to nothing toward maintenance of the international order. That may have been acceptable when the PRC was deep in poverty and emerging from Mao’s disaster.

But today, the PRC boast the first or second largest economy in the world and still contribute virtually nothing beyond a very modest UN assessments and recently, peace keeping missions abroad.

Had the PRC made progress toward becoming a team player in the international system and receive appropriate and due recognition for their interest based on their present economic, military and political standing, that is one thing.

But the PRC’s leverage is increasingly being used to for undermining the international system such as propping up and sustaining North Korea, proliferation of weapons technologies to Iran, Pakistan, etc. that are deeply destabilizing to the US and allies.

As of 2017, the Beijing regime is sparking a massive round of rearmament and causing major new military expenditures by the US and allies to counter the threats created by Beijing and their allies. The last time this happened was with the Soviets under the cold war when a major bloc actively undermined the international system.

Treating the PRC regime with “most favored nation” status and privileges from a multilateral trading regime that is structured to deal with trade between friendly governments make no sense when what is emerging is cold war era competition between Beijing and the US.



Bookmark this article.

Leave a Reply

Your email address will not be published. Required fields are marked *