Discussions

Trade and the Fire Rooster

Trade and the Fire Rooster

25 Jan 2017

Ashly Hope, tralac Research Advisor, comments on the global trade outlook for 2017

According to Chinese astrology, we are about to enter the year of the fire rooster. This fire rooster year will apparently see people being more polite and less stubborn, but with a tendency to complicate things… The superstitious suggest that 2017 will tend towards progress, honor and maximum integrity, with people learning to temper their ardour.

Progress, honor and integrity sound promising, and in the international trade world, we already have a number of complications.

As promised, President Trump has, as one of his first acts of office, withdrawn the United States from the Trans-Pacific Partnership – the 12 member trade deal that would have covered around 40% of the world’s economy. Although plagued by controversy, the TPP can definitely be described as a modern trade agreement – covering not just tariffs and barriers to entry, but also creating detailed rules on many trade related regulatory issues – from competition and e-commerce to state-owned enterprises and environmental standards.

Strategically, the US led trade deal was an attempt to (re?)assert US primacy in Asia. With the US out of the picture, commentators are suggesting that this leaves space for China to take a more dominant role in the region. Countries including Australia, New Zealand and Malaysia have already signalled their desire to preserve the TPP without the US, with Australia suggesting that China may join the deal. While this is not likely, China is championing other deals, in particular the Regional Comprehensive Economic Partnership and the Free Trade Areas of the Asia Pacific.

But even if China doesn’t save the TPP, it’s recent moves have certainly signalled an increased leadership role in global trade relations. At January’s World Economic Forum, China’s President Xi Jinping articulated China’s support of free trade, discouraged blaming economic globalization for the ills of the world and advocated for resistance against protectionism. President Xi was also particularly strong on the role of emerging markets in the global economy.[1]

As the US retreats from global engagement, there is certainly more opportunity for China to build on its presence in Africa. China is already the fourth largest investor in Africa; Chinese investors account for around 5% of the FDI in Africa – some $US32 billion – still only half of the size of the US investment, but with a faster rate of increase, with stocks having tripled since 2009.[2]

There is a similar story of growth in trade. Africa accounted for only 1% of total Chinese world trade in 1995 but grew to around 5% in 2013. tralac analysis predicts that Chinese exports to Africa will more than double by 2025.[3]

Adding to this, the Chinese led Asian Infrastructure Investment Bank recently announced that 25 new members would join – adding Ethiopia and Sudan to Egypt and South Africa who are existing members. China is also a significant aid presence on the continent.

All of this points to China continuing to increase its influence on the continent as it takes a more leading role in global relations. For African countries, having a champion of the emerging economies being more influential in global trade relations is a promising prospect. China’s rhetoric regarding inclusive trade and ensuring that the benefits flow to all is something that is critical for African nations to pursue as Africa goes about negotiating its own mega-regional agreement, and should help to avoid some of the pitfalls that have arguably led to dissatisfaction with agreements such as the TPP. Nevertheless, we should not be too quick to throw out the important steps made by agreements such as the TPP – the regulatory coherence and regulatory disciplines promoted by the TPP are unprecedented in such a significant proportion of the global economy and are key to achieving both freer and fairer trade. The TPP is also an example of a balancing of unequal partners, with wealthy countries such as Japan and Australia negotiating with developing economies like Viet Nam and Peru.

If the fire rooster does bring progress in trade relations in 2017, there is every chance that it will be led, or at least championed by a more assertive China – let’s hope that that is tempered by the maximum integrity promised by the horoscope and that Africa can take the lessons from both sides of the Pacific into its own trade negotiations.

.


[2] UNCTAD 2016 World Investment Report (Based on 2014 figures –note that according to FDI monitor, 2016 was a bumper year for Chinese investment in Africa. http://www.fdiintelligence.com/Locations/Middle-East-Africa/Chinese-investment-into-Africa-soars-in-2016)

[3] R Sandrey, tralac, forthcoming