China – the World's Trade Locomotive
By John Ross
China has overtaken the United States to become the world's largest goods trading nation. Indeed, since the beginning of the international financial crisis, increases in China's trade have been larger than those of the United States, EU and Japan combined.
Even last year, well after recovery from the trough of the "Great Recession," China's trade increase was bigger than that of any other economic center. In particular China's increase in imports remained larger than the combined total of the United States, EU and Japan - a key issue for other economies.
This change in global trade has major implications for other countries' trade strategies and for ongoing trade negotiations such as the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Trans-Pacific Partnership (TPP).
The scale of the changes in global trade that have taken place since the beginning of the international financial crisis is shown in Figure 1. This illustrates the increases in the total trade of China, the United States, the EU and Japan between 2007, the last year before the crisis, and the end of 2013.
China's total merchandise trade in 2013 was $1,986 billion larger than in 2007 - China's exports having increased by $992 billion and imports by $994 billion. In comparison, the increase in the U.S. goods trade was $741 billion, the EU $1,024 billion, and Japan $214 billion.
Therefore, not only was the expansion of China's trade almost twice that of any other major economic center, but it was larger than the $1,979 billion for the United States, the EU and Japan put together.
Taking just a bilateral comparison with the United States, which is important for ongoing trade negotiations, in 2007 China's $2.2 trillion total merchandise trade was only 69 percent of the United States. By 2013 China's merchandise trade, at $4.2 trillion, was 7 percent bigger than the United States' $3.9 trillion. In six years China's trade increased by almost $2.0 trillion, compared to a U.S. increase of $0.7 trillion - China's trade grew almost three times as much as the United States.
The change was even more dramatic for imports. In 2013 China's goods imports were $993 billion above their 2007 level, whereas U.S. imports were up by $311 billion, the EU's by $329 billion, and Japan's by $212 billion. China's imports rose by more than three times as much as the United States - and by more than the United States, EU and Japan combined. China was therefore, by a huge margin, the most rapidly expanding market for other countries' exports.
But this faces many difficulties. First, the United States dares not risk serious disintegration of world trade - therefore protectionism must be limited in scope. Second, the United States is not a dynamic import market.
Any country tying itself into a trade bloc with the United States, to the disadvantage of relations with China, is therefore entering a grouping the centre of which is a relatively stagnant area of world trade. Despite U.S. political pressure to join, there are definite limits to how much other economies are willing to enter blocs with relatively stagnant trading partners, such as the United States, at the expense of more dynamic ones such as China.
These international trade realities interrelate with domestic political considerations. As global tariffs on manufactured goods are in general already low, the necessary aim of the United States is to negotiate advantages in areas where its economy is particularly strong but where international tariffs and other barriers are still significant. Two of the most important of such sectors are agriculture and services. But these are areas of particular sensitivity in numerous countries. For example, in Japan rural areas are the key electoral base of the Liberal Democratic Party (LDP) and this is a key reason protectionism has been maintained in Japan's agricultural trade policy. Japan's newly signed trade agreement with Australia therefore did not dismantle agricultural trade barriers to the extent the United States wants.
In the United States itself there is significant resistance, particularly in the Democratic Party, to trade concessions in manufacturing and other sectors where developing economies hold competitive advantages. It is therefore difficult for the United States to offer proposals making it worthwhile for other countries to accept the domestic political problems that would be created by further opening their economies to the United States in agriculture and services.
Given actual world trade dynamics, China's proposals for widespread trade liberalisation, such as the RCEP, will be more beneficial for other countries' economies than current U.S. protectionist proposals for the TPP.
