With the conclusion of a free trade agreement in Asia under the acronym RCEP (Regional Comprehensive Economic Partnership), China has achieved a veritable coup. While the intellectual superpower of free trade – the United States of America – has laid the ax on multilateral agreements in recent years, Beijing is now an international advocate and protagonist of free trade.
Under President Barack Obama, the USA and the countries bordering the Pacific had negotiated a trade agreement TPP (Trans Pacific Partnership) – without China. The aim of this agreement was not least to curb China’s influence in the region. But after President Donald Trump unceremoniously tore up the treaty – as well as the TTIP (Transatlantic Trade and Investment Partnership) free trade agreement with the Europeans – China has now succeeded in agreeing such an agreement without the USA. Long-standing allies of the United States such as Japan, South Korea, Australia and New Zealand have joined the agreement, which should actually cause a stir in Washington. Incidentally, it is also evident with what sensitivity and nimble the export nations Japan and South Korea move on the global trading floor.
China appears increasingly self-confident
The overall process shows how much weight China now has on the world stage. Beijing’s influence is by no means limited to trade issues. The country is also becoming increasingly self-confident in the political arena. The jagged manner with which Hong Kong was put under the curb caused horror in many places. Last but not least, Great Britain, whose crown colony was once Hong Kong, received an indication of its global political irrelevance when it insisted on compliance with the treaty on Hong Kong’s democratic constitution. The angry advice from Westminster to abolish the “one country, two systems” principle was barely registered in China. In Beijing we know very well that London has been permanently weakened by the Brexit adventure and the corona chaos caused by Boris Johnson.
Most recently, Australia felt Beijing’s grim after the Canberra government was reasonably frank about human rights issues. It was not long before China issued solid import barriers for Australian goods in order to get “Down Under” back on track. Given the importance of the Chinese market for Australian goods, Canberra now faces a difficult dilemma. It remains to be seen whether the new trade agreement can help at this point.
Germany’s dangerous dependence
Australia is something of a blueprint for potential cuffing by China. Corresponding dangers are looming for the German economy and politics. It is hard to deny that China has become the largest sales market for many companies; above all the automotive industry. It is therefore of eminent importance that the USA, under its future President Joe Biden, seek solidarity with the western countries and agree on a common approach with regard to China.
Ideally, the World Trade Organization (WTO), which was badly damaged by the Trump administration, should play a central role including a sanction mechanism in world trade. Time is of the essence, especially since China is increasingly mutating into the world’s economic engine. Because the Middle Kingdom has largely left the corona pandemic behind and is back on a growth path.
Christoph Bruns is fund manager, board member and main shareholder of the investment company Loys AG. Here you will find more columns by Christoph Bruns