U.S. China Rivarly The Geo Political Context of Free Trade Agreements by Bashar H. Malkawi

The U.S. and China Rivalry: Geo-Political Context of Free Trade Agreements
Bashar H. Malkawi (University of Sharjah)
International trade constitutes a vital lynchpin of the global governance architecture
with a staggering $20 Trillion of annual trade. The global trade order consists of trade
policies and systems – in particular free trade agreements ("FTAs") – which have
played an increasingly crucial role in the infrastructure of global governance and
substantially impacting international economic development and strategic affairs. The
shifting sands of trade rules and policies both impacts upon, and is reflective of, the
current great power rivalry.
Important questions arise from the current political and economic contexts and the
transformative changes sweeping the global governance architecture. For the current
Chief Architect – the United States - do FTAs advance U.S. economic and national
security interests and objectives? If so, which route is preferred - limited FTAs or
expansive agreements? Should FTAs be viewed as complementary or a replacement
to the multilateral trade system of the WTO? On what basis should partners be
selected or rejected? Does the failure to sign on to the TPP reflect a temporary or
specific policy as to the TPP or a long-term secular change that reflects a disengaged
US? How should trade policy be shaped in the context of China which is offering
itself as a global leader on trade and globalization?
A mere five years ago, the U.S. did not presume that its position could be challenged
(Ryan Hass, https://www.brookings.edu/blog/order-from-chaos/2017/12/07/the-u-scan-no-longer-ignore-china-as-a-global-internet-player/ Dec. 7, 2017). However, the
global context has materially altered and added further complexity to these
multifaceted questions. The world has changed remarkably in a relative brief time
span in three significant ways. One, until recently, globalization was viewed
favorably with economic integration perceived to bring economic benefits. However,
in recent years, national movements against globalization and free trade have reached
a critical mass and have resulted in the election of new political leaders who want to
stop or even reverse globalization and restore perceptions of lost national power and
sovereignty. Two, until recently, the U.S. was viewed as the sole hegemon with
superlative primacy in finance, technology and military spheres. The U.S. was the
“indispensable nation” and the unchallenged leader and rule-setter of the post WW2
governance architecture. However, the U.S. hegemony is at risk to co-option by a
rising China which has skillfully ensconced itself as a global leader championing
globalization, trade and establishing institutional frameworks such as the AIIB and
OBOR. Three, as late as the 1990s, the internet, e-commerce and virtual currencies
were either in nascent stages or non-existent. Global business is becoming based on a
digital economy with widespread access to the internet in developed nations (and
increasing access overall), transformation to robotics, AI and virtual currencies. Even
traditional industries such as banking face changes due to the ability of clients to
bypass banking channels and transfer non-governmental issued currency (or stores of
wealth) via the internet seamlessly and privately.
FTAs are inextricably and increasingly linked to global strategy and the international
political order and broad, geopolitical and global governance contexts and have
always played a role in international investment and trade agreements. The U.S. trade
policy has been dominated by the establishment of FTAs to both create new, and
cement existing economic relationships, and a means of entrenching the presence of
the U.S. in different regions. Indeed, the impetus for the (currently abandoned by
the U.S.) TPP was the drive to retain the U.S. lead in rule making so that
Washington, rather than Beijing, to create the foundation for "21st-century trade
rules," including standards on trade, investment, data flows and intellectual property.
For example, the U.S.-Jordan FTA was at least partly motivated to show U.S.
appreciation of Jordan’s efforts in supporting the Mideast peace process and in
combating international terrorism. Such interests encompass other FTAs as well. The
post-Jordan U.S. FTAs with Morocco, Bahrain and Oman represented a key element
in a broader U.S. political and economic strategy. That strategy was designed to
encourage economic development and democracy in the Middle East and North
Africa, with most of the same political/security considerations that were material in
the conclusion of the U.S-Jordan FTA.
The geo-political context is particularly important in the emerging U.S.-China
hegemonic rivalry. Indeed, China recognizes the significance of trade agreements as
a pillar of the global governance architecture and has embraced trade as means to
grow its economy as well as to exert influence globally. Just as access to American
markets and capital was once a key component of U.S. diplomacy, China is now
employing its financial and trade muscle to win friends and influence. China has
embraced trade as means to advance its global ambitions as the U.S. has done for
decades. It is obvious that China's trade policy focuses on regional leadership.
Of course Chinese goals are in furtherance of the socialist model and it will be
interesting whether the success of China and its emergence as a major architect of the
governance architecture will influence nations to imitate the Chinese model.
Indeed, the importance of the strategic context is further illustrated by NAFTA. Prior
to NAFTA, U.S.-Mexico relations were cool. Mexican attitudes towards American
investors have been described as antagonistic. Yet NAFTA changed a former cool
neighborly relationship into a significantly warmer friendship. In terms of both private
sector and governmental relations, the U.S. and Mexico are on significantly better
terms. NAFTA dramatically improved the dynamic of official and private relations.
The move towards imitating a U.S. economic/political model through NAFTA is
clearly the opposite of the Chinese model of state capitalism and one party rule. And,
in the context of a rivalry for which model should be embraced globally, the
economic effects should not be underestimated. In the U.S.-China rivalry, an
economically unified North America is a vastly more powerful competitive platform
than the United States alone in seeking to address global economic challenges
including China.
Bashar Malkawi is Dean and Professor of Law at College of Law, University of
Sharjah UAE. His academic career has traversed both business and law schools,
teaching a variety of business law courses in Jordan, UAE, Italy, and United States.
His research agenda focuses on the role of the World Trade Organization, regional
trade agreements, and economic integration.