Apparel Sourcing Intelligence - Worldwide

What’s the Chinese for hogwash?

“China must be ready to face [the] growing trend of protectionism” said its Premier Li Keqiang on March 5.

Well, he should know. Time after time, whichever political parties have been in power, China’s been the most frequent target for complaints throughout Europe and North America concerning its constant erection of truly spurious protectionist barriers against foreign products.

China’s “non-market economy” status

When China’s bid to join the World Trade Organisation (WTO) was agreed in 2001, all parties accepted that China didn’t have a real market economy. Its government was more prone than most to interfere with trade – often surreptitiously – and the outside world couldn’t depend on the usual indications of interference.

So if another country felt China was unfairly bending markets, the WTO allowed different criteria for proving unfairness allegations against China from those used to determine alleged misbehaviour by, say, Europe. This  – let’sv be honest and admit it – second class WTO membership was called “non-market economy status”, or NME

The assumption was that China would evolve into a more conventional society, with free-ish markets, within 15 years. So China’s WTO accession agreement said China would keep its NME status till at least December 11, 2016,

China today

Though China certainly now mouths lots of rhetoric about open markets, the EU, Japan and the Obama-era US all agree that China has refused to make any progress since joining the WTO on eliminating its rigged markets – which are why the WTO still treats China as a non-market economy.

China has made no attempt to demonstrate any progress to becoming a market economy.

Its reaction to the WTO not abolishing its NME status was first to insist – with complete disregard for the wording of the accession treaty it signed at the beginning of the century – that it had a legal right to lose NME status in December 2016.

Then, when Japan sided with the US and EU in supporting China’s status, China Daily, the official journal of the Chinese Communist Party, accused Tokyo of “poisoning the recovery of the global economy.” It said (though with more justification) that President-Elect Trump  “bears no sense of how to lead a superpower”, while  the China Government-run Global Times described him as being “as ignorant as a child”.

The WTO dispute and Donald Trump

For China, of course, it was a propaganda gift that the election of Donald Trump more or less coincided with the day it claimed China was due to lose NME status.

As Trump withdrew the US from the Trans-Pacific Partnership, China could present its visions for cross-Pacific trade deals like the Regional Comprehensive Economic Partnership (RCEP) as a continuing commitment to globalisation, while the US was becoming increasingly isolationist.

Right after Donald Trump’s February 28 attacks on the World Trade Organisation’s limited trade defence measures, China’s Foreign Ministry spokesman Geng Shuang was able to claim with a straight fact that:

China’s “principled position was that preserving and improving the WTO-centered, rules-based, fair and open multilateral trade regime is conducive to boosting world trade and economic growth. China supports the rules-based, fair and open multilateral trade regime with the WTO as its core”

Otherwise sane academics can say – again with a straight face – that “This rising Chinese interest in multilateralism is sparking interest around the world, particularly from those interested in combating global threats”

But what’s really happened since 2001?

There’s no real evidence China’s made any effort to change its stance on trade since joining the WTO,

On the contrary. In 2013, China’s President Xi Jinping launched a “Sixty Points” plan requiring officials to: “persist in the dominant position of public ownership, give full play to the leading role of the state-owned sector and continuously increase its vitality, controlling force and influence.”

And far from opening its markets up to the outside world, China’s “Made in China 2025” project, launched in mid-2015, is committed to “raise the domestic content of core components and key materials to 40% by 2020 and 70% by 2025” – making a mockery of any expectation foreign countries will sell it more.

That plan is, slowly, drawing the attention of China’s trading partners.

On March 7, the European Union Chamber of Commerce in China attacked the likelihood of “increased state intervention” in China’s ten year plan to cut imports. “Instead of moving ahead with progressive market-based reforms” said   European Chamber President Jörg Wuttke, the Made in China 2025  initiative “poses serious problems, not only for European business but also for much of China’s private sector and the wider economy.”

And China’s not just interfering in trade

South Korea is currently considering “filing a complaint against China to the World Trade Organization” about China’s disruptions to Korean trade because China dislikes the THAAD radar South Korea has installed to defend itself against North Korea.

China has one growing interest: in increasing China’s share of world markets, and in the Chinese State’s share of the Chinese economy.

That’s not multilateralism: it’s straightforward trade imperialism. Wanting easier access to foreign markets, while trying to control how much of its own market foreigners have access to. Trumpery with chopsticks.

Is that such a bad thing?

China’s not unique in wanting easier access to foreign markets and less foreign access to its own.

It’s ridiculous to let it get away with nonsense like “China supports the rules-based, fair and open multilateral trade regime with the WTO as its core.” But its trade aspirations aren’t that different from India or today’s USA.

  • The Trump Administration’s vision for American trade doesn’t just seek a dramatically reduced role for the WTO and the web of commonly-accepted trading rules it has sponsored. Peter Navarro, Director of Trump’s National Trade Council,  is clear that he wants one-to-one US trade deals that are automatically renegotiated if the U.S. begins to run trade deficits.

In a March 6 speech, he seriously suggested negotiating a trade deal with Germany – with which the US has a greater negative trade balance than it has with Mexico – so that America could  “sell more Washington apples, Florida oranges, California wine and Wisconsin cheese and Harley Davidson motor cycles” America has no trade deal with Germany, and to attempt negotiating  one first is in effect arguing for the break-up of the EU: a policy Trump’s apparent nominee as Ambassador to the EU, Ted Malloch, actively promotes

  • India keeps avoiding real trade deals. It’s been, in theory, negotiating one with the EU since 2007, but the talks are going nowhere because India won’t make any concessions. Brexit advocates claimed this was because the EU’s 28 members wanted 28 different sets of things. But when Britain tried in November 2016 to start talking about a one-to-one deal, India kept on refusing any meaningfully improved access for British goods or services – but added a new demand, for increased Indian migration to the UK.

India’s key foreign trade strategy is to build more manufacturing infrastructure and rely on – well, it’s not clear what – to outsell competition. In apparel making, that strategy hasn’t even got to first base: its central programme – a network of export production zones –targeted 3 million new jobs a year, but has so far produced just a thousand.

Bluntly, India’s democracy provides social stability that allows some of the world’s worst poverty to fester with little real threat to law and order. By contrast, China’s Communist rulers are constantly motivated to ensure jobs growth by fear of the political chaos that would result if they failed. India’s rulers, however, appear more interested in ensuring their children can study at Oxford or Berkeley than in jobs for the billion Indians who do not speak English.

For the world’s three biggest countries – or at any rate for the people currently governing them, the benefits of a “rules-based, fair and open multilateral trade regime” are not clear.

The problem is how realistic a “rules-based, fair and open multilateral trade regime” actually is. The world’s largest countries – or at any rate their current rulers – clearly don’t want one and their rulers seem happy to claim in public this regime is just a way of making their country victims of some plot by – well, who?

What the current rulers of India, China and Trump’s US agree on – without publicly admitting it – is that the WTO was really founded by a group of high-minded liberals around the North Atlantic. And those high minded liberals’ aspirations aren’t theirs.

Speaking myself as a high-minded liberal, I think they’re misguided. But it’s not getting anyone anywhere to tell them I understand their interests better than they do

Shades of the TPP?

In some ways, all this sounds similar to where the world was on TPP a year ago.

At that point, both the leading US Presidential candidates were against it.

Though seldom quantified, public opinion in the leading TPP-negotiating democracies (Canada, Australia, New Zealand, Japan) seemed loudly against it. Outside the US apparel industry (which was excited at the prospect of duty-free access to Vietnamese manufacture at a time China looked to be getting expensive) it was hard to find major businesses making any kind of serious case for it that any electorate was likely to believe.

True, we heard lots of improbably high estimated benefits, with no real back-up and a few high-falutin’ points of principle (like “ensure the Pacific adopted American trade rules”) few voters anywhere understood, and most of those that did weren’t too happy about anyway.

Yet 12 well-organised nations continued spending time and money chasing an agreement that any sensible observer could tell was bound to disintegrate. Or at best: not become effective for at least a decade. And one that American businesses kept on insisting was going to change the world – in spite of all the signs it was going nowhere.

So where does this get us?

At least as far as the world’s three biggest countries are concerned, trade deals – as once they were understood – are now unfashionable.

This doesn’t mean there’s no role for deals between like-minded countries elsewhere: especially the EU, EFTA, the richer parts of the Commonwealth (Australia, New Zealand, Canada, UK and Singapore) and a few similar countries elsewhere (like Chile)

And it doesn’t mean the WTO’s going to break up.

But it’s delusional to pretend any deals involving the world’s three biggest countries – under their present rulers – are going  to show any interest in creating a “rules-based, fair and open multilateral trade regime.”

And as long as any country interested in free trade remembers that when dealing with the world’s three supreme protectionists, no-one will get hurt.