Free Trade: 8 benefits for the Chinese government

Using the Asia-Pacific Economic Cooperation (APEC) summit to promote the Free-Trade Area of the Asia Pacific initiative, China revealed how it intends to counter the effects of the proposed Trans-Pacific Partnership (TPP), which excludes China.  In persuading the US and Russia to spend the next-two years studying the impact of the proposal, China is seeking to undermine any disadvantage TPP would have created for the world’s second largest economy.

Where TPP would give the United States an advantage when competing with China and help drive US consumers away from Chinese imports and encourage greater investment/consumption from other less-powerful, friendlier Asian exporters, FTAAP would solely undermine the ability of governments to tax imports.  Consumers might benefit in terms of lower prices and greater access to goods from around the region, however, the greatest benefits would go to the Chinese government.

Although it seems fairly odd for a Communist government to embrace Free Trade, China is run more like a business than a country.  From its state-owned businesses to its massive subsidies to its military’s corporate espionage to its heavy-handed regulatory infrastructure designed to favor Chinese businesses over foreign competitors, instead of providing for safety, pollution, and labor rights, China is a business like no other.

Supporters of Free Trade believe a lack of tariffs leads to lower prices for consumers and tax revenue for governments due to increased economic growth from increased trade, yet even they would have to agree the most direct, most substantial benefits go to corporations that export their goods and invest in foreign markets.  The Chinese leadership is willing to lose on tariff revenue and open its economy to more foreign goods, because it can make significantly more through overseas investments due to expanded sales and access to cheaper labor for its industries, which is not true for other governments, but this is only a start to the benefits for the Chinese government.

1.  Free trade spreads, because the immediate economic benefits are often more obvious than the broader costs while government officials fear their countries will become “uncompetitive,” if they do not engage in free trade.


Because the US, as the world’s largest economy, engages in free trade, it is far more difficult for poorer countries to say no to lower taxes and less regulation.  Adding China to the list will only it make it that much more difficult to reduce the negative impact of free trade.

Where the US and other countries should recalibrate their trade agreements to better reflect the interests of their countries on constant basis, free trade makes it very hard to impose any boundaries on industries.  This means China’s embrace of FTAAP pressures the United States to compete by disadvantaging its businesses and workers. 

2.  Looking at the United States and most of the West, expanded income inequality driven by growing poverty and ballooning national debt demonstrates what happens when American workers “compete” against low-wage workers and governments “compete” against low tax rates/a lack of regulation.  Since China is poorer than the United States, particularly on a per capita basis, America must lower its standard of living and government expenses to those of China in order to compete in a free trade system. 

3.  Because the Chinese economy offers its workers significant income inequality as well, even though it is supposed to be a communist country, the elites of China, both in government and industries, have a great amount of discretionary funds they can use to invest in other countries.  In buying out other countries, China gains greater leverage over those countries and makes it far more difficult for the governments of those countries to dissent from Chinese policies.  At the same, it helps concentrate the wealth of the global economy into the hands of the Chinese elite.

4.  Increased imports into China is actually a necessity that is only going to grow over the next few decades as national resources struggle to keep up with the demands of 1.3 plus billion people.   By turning to free trade now, the Chinese government can reduce the cost of goods that China cannot readily produce and shift the Chinese economy toward products and services, including financial services, which it can provide in the future.

5.  Just as in the West, increased imports from countries where workers are paid less means Chinese workers can expect greater competition for jobs.  This will, in turn, add downward pressure on wages.  Given the size of the Chinese population and their growing demands for a global “middle class lifestyle,” it would be far easier for the Chinese government to suppress their incomes than to help 1.3 billion people achieve their version of “the American Dream ” by building a stable economy that can fulfill those demands and keep prices in check, so the elites can afford their privilege .

Considering the sentiments of Hong Kong’s Beijing-appointed Chief Executive Leung Chun-ying in response to demands for universal suffrage during the Hong Kong Umbrella Revolution, the idea that democracy must be avoided in order to ensure the poor do not gain a dominant voice in government says it all.  Stable societies are built on balancing the interests of all populations within a nation.

The interests of the poor, especially in capitalist countries, are often neglected, because few have respect for their views due to their lack of financial success.  Although this mentality is likely shared among the Chinese elite, the failure to address the interests of the poor/non-rich will lead to failure for all.

6.  A lack of wealth makes it easier to control people.  Consequently, few jobs and stagnant pay is not necessarily an issue for the oppressive Chinese government.  Only when the Chinese economy can no longer provide enough to satiate the needs of the Chinese People will outsourcing become an issue. 

Forcing people to become increasingly reliant on socialist programs for their basic necessities helps enslave them to the affluent.  Because the top concern of the Chinese government top is ensuring its survival and dominance over the Chinese People, free trade provides another benefit when it stifles growing standards of living.  For the People of China and the Peoples of the world, however, this is a very big negative.

7.  Because the Chinese can derive income from state-owned industries and investments, it does not need tax revenue.  As such, it does not need to concern itself with revenues like income taxes.  Conversely, Western democracies, particularly the US are becoming increasing dependent upon as they cut corporate taxes in the name of competition. 

As the Chinese government is not answerable to its people and its people need jobs, China can also undercut its competition will continued weak regulation.  At the same time, foreign labor can be imported as needed, thus free trade would give China the expert and low-wage human capital it cannot find at home.  Moreover, free trade helps make China more competitive as a country. 

8.  China can also use the international need to combat global climate change, coupled with free trade, to its advantage.  Although the Obama Administration does not have the authority to honor any pledge to cut carbon emissions to this or that target, which means it can only develop a plan to do so or invest in alternate energy sources, policies that might disadvantage the US would be beneficial to China. 
 
Pollution in China encourages social unrest, so China does need to curb its pollution somewhat as it has agreed to do so; however, the government’s leadership on climate change is also a great way of encouraging other polluting nations to disadvantage themselves with few to no environmental benefits.

Moreover, the US and China are both world powers that find themselves in a situation where they must both cooperate and compete at the same time.  For China, this means managing the decline of the United States.  For the United States, this means managing the rise of China.

In order to address these competing interests, both countries can only be expected to pursue strategies that are to their benefit.  Unfettered free trade throughout Asia is more in the interest of Chinese government, but it is not in the broader interests of the US, the rest of Asia, or the Chinese People.