Article
Trading away our future in China
The economy is suffering and the planet is warming, but Barack Obama's first visit to China is all about a trade war
Barack Obama makes his first trip to China in the middle of a global financial crisis and just weeks before world leaders meet to try to strike a global climate change deal. Leadership from the US and China is imperative to solving these crises. But rather than tackle them, the two countries are mired in a good old-fashioned trade war and plan to use Obama's historic visit to negotiate an investment deal that could set the stage for more trade disputes in the decades to come.
In September the US slapped heavy tariffs on Chinese tires. The Chinese quickly struck back by launching investigations into imports of US cars and chickens. In October, the US launched an investigation into steel pipe imports from China, which led to a 99% punitive tariff in November. China is now considering its own investigation into the US bailouts of the car industry, claiming the carmakers might have been unfairly subsidised.
Worse still, one area in which the two superpowers are co-operating will open the door to even more disputes. Among the topics on the table for Obama in China is a proposed bilateral investment treaty (BIT) that will, among other things, make it harder to transfer clean technology and easier for the two countries to spat over trade.
Under a BIT, US and Chinese companies would be granted substantially greater rights than they enjoy under the WTO. BITs allow foreign firms to sue state and local governments for measures deemed discriminatory impediments to their profitable operations. By elevating the rights of corporations over governments in international disputes, BITs could undermine new regulations each country might implement.
BITs make it much harder for governments to deploy prudential measures to prevent and mitigate financial crises, for example. Under its agreement with the US, China would essentially be forced to de-regulate its financial system – not prudent given that it was China's banking system that held its own during the crisis.
Rather than petitioning the Chinese government conducting an investigation of the US bailout and deciding whether to file a case, the Chinese firm Geely (which may buy Volvo from the the US carmaker Ford) could hypothetically sue the US government for damages.
It's not too hard to imagine. Look no further than Argentina to see these kinds of lawsuits in action. Argentina has over 40 claims against its actions to pull itself out of the financial crisis that hit there in 2000-2001. Some private firms have been awarded over $100m.
What's more, new regulations to stop climate change could be interpreted by private tribunals as diminishing the value of a firm's investment. That's enough grounds to sue a domestic government for damages. This happened in Mexico in the case of toxic waste regulations and was tried in the US against clean water regulations.
It is ironic that the US is negotiating an investment deal now, given that it just received a report from a state department advisory committee recommending that the US break from the past and redraft its investment treaties to ensure that companies, workers and the environment are on a more level playing field.
When the world is working hard to create new global regimes to prevent financial crises and stop global warming, it's hardly the time to lock in old-fashioned rules that stand in the way of progress. Now, more than ever, the world needs US and Chinese leadership.
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User Comments
peterNW1
13 November 2009 7:25PM
"In September the US slapped heavy tariffs on Chinese tires."
Tires? I didn't know China exported headdresses to the States.
pietroilpittore
13 November 2009 8:18PM
LSEscientist
The new treaty as a result could force the Chinese to enter the modern era and allow its citizens the rights basic to those of civilized country.
More pessimistic interpretation: China is the modern post-democratic era and the treaty will allow America to decay to their level.
More realistic interpretation: the Chinese government cannot be forced to do anything (chorus of cheers from Americanophobes) and have no intention of letting their people live in a civilised country (chorus of protest at fascist imperialist arrogance of attempt to privilege outmoded Western concepts of civilisation).
pietroilpittore
13 November 2009 8:18PM
LSEscientist
The new treaty as a result could force the Chinese to enter the modern era and allow its citizens the rights basic to those of civilized country.
More pessimistic interpretation: China is the modern post-democratic era and the treaty will allow America to decay to their level.
More realistic interpretation: the Chinese government cannot be forced to do anything (chorus of cheers from Americanophobes) and have no intention of letting their people live in a civilised country (chorus of protest at fascist imperialist arrogance of attempt to privilege outmoded Western concepts of civilisation).
JieFang
13 November 2009 11:19PM
@pietroilpittore blockquote>the Chinese government cannot be forced to do anything
Fascist regimes like the Mainland Chinese government always pretend that they will "never change" and will rule "for a thousand years." In fact the Mainland Chinese government has already had to introduce a capitalist economic system and abandon socialism, an immense policy flip and not the only one.
The fact is that the Mainland Chinese economy is weak and is declining rapidly. Last year its Per Capita GDP fell from $5300 to $4900, placing it 135th in the world. The PRC government and economy won't be around for long for the Americans to worry about.
Garcy
13 November 2009 11:25PM
planet is warming
No its not. The planet is cooling. Thats why its called "climate change" not Global warming.
It may warm in the future but it is now cooling.
This is the kind of lazy factual accuracy that makes reading Guardian articles dull.
Makes me wonder how much else is made up...
BigChegs
14 November 2009 12:42AM
This can only be good for Europe. Let the Americans and Chinese sue each other to smithereens and clog up their economic arteries.
Europe will forge ahead with a cleaner, greener, more responsible way ahead and leave the two "superpowers" in their wake.
Garcy
You've lost the plot mate. You think the planet is cooling because it's winter or what?
cmnimo
14 November 2009 1:00AM
But rather than tackle them, the two countries are mired in a good old-fashioned trade war and plan to use Obama's historic visit to negotiate an investment deal that could set the stage for more trade disputes in the decades to come.
When all else fails, the US has always used legislation to hobble the competition. Many overseas companies have fallen foul of the monopoly or price fixing laws simply because they own a product that the US desires or needs. Some companies, for these very reason have found themselves marked as either criminal or at the very least, have faced hefty fines...running into the millions...leaving them vulnerable to hostile bids.
I know I sound anti-US, I am not but this is not good business practise. It doesn't make friends and the hypocrisy and bias hasn't gone unnoticed by the US press either.
I don't think it is wise to play this game of brinkmanship with China...though it could be interesting to watch. But China, more than any other nation keeps its own council..it acts rather that allowing itself to become bogged down with rhetoric or protracted diplomatic protests and the US does owe China quite a bit of money.
pillau
14 November 2009 1:57AM
Kevin, even after tariffs the tires for my car (just changed) - Chinese made 500$, local made - 800$. Just try to walk in Obama shoes for a day - just try it!
chickenlegs1
14 November 2009 2:36AM
Jiefang, I see you have taken China's 4.3 trillion GNP figure and divided by 1.3
billion to come up with your per capita GDI ftgure. Rather disingenuous don't you think? I gather you don't get to the Mainland from your Guomindang office there in
Taibei or Gaoxiong. Maybe you should; it would be a real eye opener for you!
gentilicium
14 November 2009 4:01AM
chickenlegs1
Yes, he'll find out that an overwhelming number of PRC citizens earns much, much less than that.
The Gini Coefficient for China in 2001 was .45. At that time, according to the research of UNDP statistics, the richest 20% of society owned 50% of the nation's income and consumption (the richest 10%, 33% of the total). Since 2001 the Gini has at least risen to .48 and perhaps higher, indicating that the rich own an even greater percentage today. Mainlanders, naturally, have begun to fret over the astonishingly income gap.
Sure, people make money in China and we hope wages are slowly rising, but per capita numbers are per capita numbers--and it bears keeping in mind that the real situation for over 80% of the Chinese population can only be worse, not better, than what those numbers determine.
cnmino
Do you come from some kind of invertaworld?
The US has consistently been in the top 5 in Global Economic Freedom indexes for decades (I think they were 6th in 2007). The only European nations that can compete with them in this respect is Switzerland and perhaps Ireland, 45% of whose FDI was funded by the US. China's ranking? 82nd. After such bastions of economic liberty as Namibia, Ghana, Kyrgyz Republic, and just before Russia.
The BIT is simply a terrible idea. China has no respect for any law.
GeneralX
14 November 2009 4:40AM
Barack Obama makes his first trip to China in the middle of a global financial crisis and just weeks before world leaders meet to try to strike a global climate change deal. Leadership from the US and China is imperative to solving these crises. But rather than tackle them...
Oh I expect they'll be able to find a few minutes to discuss what to do about the European problem.
physiocrat
14 November 2009 6:55AM
Trade wars appear to be based in the principle "You have shot yourself in the foot so I shall blow my brains out".
The biggest losers from tariffs are consumers in the countries that impose the barriers.
JieFang
14 November 2009 7:09AM
@chickenlegs1
...try http://www.indexmundi.com/ for world GDP rankings etc...
demonising
14 November 2009 11:39AM
JieFang
You really do not need to post your rank again again again for every comments about China. Anyway, it is a cheap work. .. understandable, ned funding is tight
Paulchina
14 November 2009 12:34PM
It's perfectly normal to earn 2-3000 Yuan a month in Shanghai. That's not a lot of dollars in one on the world's more expensive cities.
roborbob
14 November 2009 1:33PM
I thought Chinese GDP is artificial? It is as adjustable as its currency.
fabiusmaximus
14 November 2009 1:58PM
Chinese figures are distorted. Did they increase GDP by building ghost cities.
LSEscientist
13 November 2009 7:18PM
One area would be the Chinese lack of human rights. These prevent American firms working on a level playing field commercially with Chinese ones. Lacking human rights, Chinese workers cannot freely organize and so price their labor at its real economic value to Chinese firms. This is not the case in America. As a result, Chinese firms have as an "unfair" commercial trading advantage against American ones.The treaty could allow US firms to sue over this.
The new treaty as a result could force the Chinese to enter the modern era and allow its citizens the rights basic to those of civilized country.
Should we not welcome that?