China’s Silk Road Summit, TPP, and An Alternative Trade Approach: More Trade of Extracted Versus Produced Goods

Under the “One Belt, One Road Initiative,” also known as the New Silk Road project,  China is expected to spend around $1.3 trillion on infrastructure to connect China’s industrial center to Western Europe via land and sea.  During China’s 2017 “Belt and Road Forum for International Cooperation,” which was held in Beijing and attended by representatives of over 130 countries, President Xi Jinping wholeheartedly embraced globalization and economic, though not political, liberalization, which is not surprising as the Communist government has been enriched by global trade.  Having already made agreements with 70 countries, Beijing announced another $100 billion in infrastructure spending.
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If Beijing is treated as the head of a massive umbrella corporation, the relatively small price of this initiative is a shrewd investment that will guarantee China’s highly competitive goods, and services, can reach the farthest corners of the global marketplace. Facing surplus inventory from overproduction, uncertainty due to weakened confidence in China’s financial markets, and slowing economic growth, “China Corp” needs a boost.  Unable to rely on the Chinese People, who are committed to their own personal financial well-being and savings, Beijing hopes to open new markets and improve access to old ones.  As labor costs rise in China and economic growth falls short, this will also help Beijing export Chinese workers and utilize cheaper foreign labor as needed in the future.

​As the government of a nation, however, Beijing’s actions appear to be that of a world power undertaking empire building.  It is a means to expand and secure Chinese influence.  Just as Beijing’s growing economic reach should alarm business competitors, which do not enjoy the backing of a state benefactor as many Chinese companies do, the US and other nations see Beijing’s initiatives as means to economically surpass the US and secure China’s global influence.  While it is clear that Beijing seeks a strong foreign footprint, it is not clear if it is being done to secure the wealth of the Communist Party or the influence of China.  It does, however, renew calls for the US to counter growing Chinese influence .
 
In viewing China as a threat, there is pressure to counteract Chinese moves like the “One Belt, One Road Initiative” with policies that promote US-centered global trade.  TPP was the Obama Administration’s response to ever-expanding Chinese influence. The Trump Administration has since withdrawn from TPP while threatening to abandon NAFTA, which is viewed by proponents as a means for the US to compete against cheap Chinese labor by utilizing cheap Mexican labor.  In terms of building trade blocks, China would also have to secure cheaper labor to out compete the US.   TPP, from which China is currently excluded, has been framed as a means for the US to secure US economic interests and rewrite the rules of trade in Asia.
 
Although the US has rejected TPP, other TPP members have moved forward, including Japan, Australia, New Zealand, and Vietnam.  For these countries, a trade arrangement like that adopted by the TPP framework may well be more advantageous than detrimental.  While some of the TPP countries are wealthier than others, which can put the workers of wealthy ones at a competitive disadvantage, their relatively small sizes allow these nations to specialize their industries and take advantage of the products their partner nations specialize in without necessarily deleveraging their domestic industries.  Just as the EU offers costs and benefits for wealthier Germany, France, and Great Britain, TPP can be beneficial to rich Asian nations as well as poor Asia nations in need of capital and jobs. That said, there will be detrimental costs if TPP simply intensifies competition by undermining domestic production.
 
For big and rich countries like the US, which has a large population, an extensive cache of natural resources, and capital, TPP can easily do more harm than good.  When it comes to trade, the US needs to lower technical barriers to trade, which TPP does whether or not the US adopts due to many of the standards incorporated into the agreement.  The US also needs tariffs lowered on US goods.  Broad “Free Trade” agreement threaten the US manufacturing sector, because cheap imports and outsourcing to cheap foreign labor place US-based operations at a cost disadvantage.  Because the quality and durability of goods matters as much as price, removing tariffs to make cheap goods even cheaper is not sound policy or helpful to consumers.
 
The US has an interest in security a manufacturing sector that provides a massive number of well-paying jobs.  On the other hand, the US has an interest in securing trade relations and building the economic sectors that provide the raw materials used by industry.  In manufacturing, products are produced by workers and machines, thus operations and jobs can be outsourced.  In the agricultural and mining sectors, goods are grown and extracted, thus their production cannot be outsourced.  There is, of course, a strong argument to be made for securing America’s long-term needs by under-developing America’s drilling and mining operations, but those are industry specific while long-term interests must be balanced short-term needs.
 
Although prices face upward pressure by global demand, the price of all goods are based on global supply and demand.  Selling America’s goods extracted from America’s natural bounty to the rest of the world can help create jobs in the US, guarantee the viability of US industries, and extend America’s economic reach.  It also allows America to set the standards on environmental and labor regulations.  China’s aggressive pursuit of globalization does not require a broad free trade response, but US economic influence can be secured by improvising healthier trade relationship between the US allies and opening the world to extracted US goods in a way that US domestic interests, including jobs, are also protected.