The Political Challenges Facing Economic Opportunity

 November 5, 2014

Host: The Brookings Institution


Mr. Charles Freeman III, Nonresident Senior Fellow, John L. Thornton China Center

Mr. Malcolm R. Lee, Nonresident Senior Fellow, John L. Thornton China Center

In many ways, political policies – particularly in foreign policy – are the product of an academic idea coming together and mixing with public perceptions and opinions. In order for a policy or initiative to succeed it must not only be pragmatic and insightful, it must also garner public support, or at least avoid public backlash. Naturally and unfortunately, sound policies are not always backed by strong and popular rhetoric. For this reason, good and advantageous policies do not always gain political support and their potential is not always realized.

When it comes to U.S.-China relations, popular perceptions have been successful in steering political will and dictating new policies for better or for worse. Despite possessing an economic relationship worth over a half a trillion dollars, the U.S.-China relationship is largely painted as one of competition. In the U.S., initiatives such as the Trans-Pacific Partnership (TPP) and the Bilateral Investment Treaty (BIT) with China have been routinely painted as attempts to “ship jobs overseas.” Similarly, in China, the TPP has been perceived as an attempt to contain and limit Chinese growth.

These summations though, according to Mr. Freeman, misrepresent both countries’ aims and fail to recognize how both the TPP and BIT can spur on mutually beneficial economic growth and development. He instead argues that the TPP allows the U.S. to play a role in “the rule making organizations that are going to set the stage for global trade rules for decades to come.” Unlike past trade deals, the TPP is forward thinking and addresses intellectual property rights, the role of intermediate goods in supply chains, and other new and important aspects of economic growth.

From China’s perspective, Mr. Freeman believes that the TPP and BIT are external measures that will be able to spur on necessary domestic economic reforms. Having announced the need to reform its economic policies at the Third Plenum, China’s ruling party has, so far, not taken many steps towards attracting foreign businesses and investment. Although it recently opened an economic free-trade zone in Shanghai, the country’s long-standing, state-owned enterprises still dominate the market and enjoy the position afforded to them after years of preferential treatment – carried out at the expense of foreign businesses.

However, as previously stated, well-intentioned policies do not always get approved and the political climate in both Beijing and Washington are holding the TPP and BIT back.

Throughout his time in office, President Obama has struggled to win concessions or cooperation from leaders in Congress. This task will likely remain challenging even after the largely pro-trade, Republican Party won a majority in the U.S. Senate. No matter who is in charge, “trade deals are tough to pass.” Further, given the country’s focus on the expanding wealth gap, Mr. Freeman and other experts believe it will be tough to prioritize and pass any legislation that is aimed at aiding big businesses and their international ambitions. For the foreseeable future, at least through 2016, the U.S. is expected to remain largely on popular, domestic policies.

In China, President Xi Jinping has been very successful in centralizing power. However, both Mr. Freeman and Mr. Lee are skeptical that President Xi has the will to push through large-scale economic reforms while he is simultaneously shouldering a large domestic agenda. Both speakers agreed that, right now, Chinese politics are focused on stamping out corruption and breaking up state owned monopolies.

Although Mr. Lee acknowledged that China’s need to cut down on imports and build up domestic consumption would soon require that it embraces measures similar to those described in the TPP – such as protecting intellectual property rights in order to drive domestic innovation – he does not believe that the country will pursue such measure for several more years.

These initiatives are important on both the economic and strategic level. With U.S. businesses in need of a level playing field and Chinese innovators in need of a legal system that protects their ideas, Mr. Lee believes that the TPP and BIT can serve as a “rules based anchor” that will keep markets stable and on a level playing field through which business and investments can flow seamlessly. With a common goal and desire in mind, all that is holding back progress it political action.

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05. November 2014 by Will Houstoun
Categories: East Asia, Economics | Comments Off on The Political Challenges Facing Economic Opportunity