Subramanian proposes a “China round”

by

Arvind Subramanian (pdf):

China has become too economically dominant for the United States to engage with China on its own. That is one of the major changes that has occurred in the world economy over the last decade. Fortunately, the desire and concern to ensure that China’s rise will remain a force for good is widely shared amongst other industrial and developing countries. This provides an opportunity for the United States to lead a collective effort—muscular multilateralism—to engage with China on trade issues. Moreover, because China’s economic development has benefited enormously from an
open trade system, it will have a stake in preserving it.

A concrete way to realize this is to move beyond the Doha Round to start a new round of multilateral trade negotiations — a possible “China Round” — that would focus on the issues — exchange rates, government procurement, services, technology policy, commodities, and climate change — which are particularly crucial for China’s trade relations with the US and with other large trading nations.

Previously:

In your book, you talk about the importance of tethering China to a multilateral system. Why should China be interested if it’s inevitably number one?

We need to bind China today to the multilateral system so a kind of habit and incentive builds up. Then repudiation of the system would be more difficult. We need to do this before China becomes a hegemon

Everyone has to come together to do this well. If every country tries to make its own deal with China, no one will have any leverage.

Think about exchange rates. If the world came together now and said let’s do a deal on exchange rates, China would be more likely to participate. It doesn’t want to be seen as deviant from international system. The opprobrium of the world is the biggest carrot and stick to use with China.

One of your main policy recommendations is to start a China round of trade negotiations. What could that accomplish?

When China joined World Trade Organization in 2001, people said we tied China to the global economic system (because of the commitments it made to open its markets and follow international rules). But through its exchange rate policy, China has unraveled parts of its commitments. What that signifies is that Chinese leaders at the time were overreaching in terms of domestic political support. Evidently, WTO accession wasn’t politically sustainable internally.

Over time, China will move away from mercantilism. They would then have an incentive to make a deal. A deal could involve government procurement – other countries opening their bidding for China—as well as commitments by China involving control of natural resources and the exchange rate.

Advertisements