Tag Archives: Xi Jinping

Free Trade, Neo-Mercantilism, and the “Rules” of International Trade

President Obama shakes hands in the Oval Office with Xi Jinping, the current Vice President (and presumptive next President) of China.

President Obama welcomed Xi Jinping, China’s “president in waiting,” to the White House this week for a high profile visit.  Obama warned the visiting leader that China must play by the rules of international trade, a comment reflecting American concerns about Chinese currency manipulation, intellectual property transgressions, and other barriers to free trade.  But economic analyst Clyde Prestowitz questions the wisdom of Obama’s “lecture” in his latest blog post:

“It sounded right and fair and slightly tough as it was carefully crafted to do by top White House political advisers, and the president may even believe it. But he shouldn’t have said it.”

Why shouldn’t Obama have criticized China for not playing by the rules?  Prestowitz argues that there are no universally agreed upon rules for international trade; rather, there are (at least) two different games being played simultaneously, by different actors, with different sets of rules.  Some states embrace economic liberalism, or free-market capitalism, which emphasizes comparative advantage, free trade, and limited government intervention in economic affairs.  Others–particularly those who are not benefiting from the trend toward greater globalization and free trade–favor mercantilist policies, which emphasize national wealth and the protection of domestic industries from foreign competition through tariffs and other trade barriers.  Prestowitz spells out which parts of the world are playing each game: 

“The global economy is, in fact, sharply divided between those who are playing the free trade game and those who are playing some form of mercantilism. Of course, there is a spectrum of attitudes and policies, but roughly speaking the Anglo/American countries, North America, and parts of Europe are playing free trade. Most of Asia, much of South America, the Middle East, Germany and parts of Europe are playing neo-mercantilism. It’s like watching tennis players trying to play a game with football players. It doesn’t work, and insisting on playing by the rules doesn’t help, because both sets of teams are playing by the rules — of their game.”

What do you think?  Are America and Europe really playing by their own rules of free trade?  Is free trade or mercantilism (or some combination of the two) a better approach for achieving prosperity?  Does America have the right to tell China how to play the game of international trade?

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Five Stories You Might Have Missed

President Barack Obama has been busy on the diplomatic front this week. On Thursday, Obama announced his administration would cancel President George Bush’s proposed deployment of a missile defense system to Eastern Europe.  The missile defense system would have involved deployment of radar systems to Poland and the Czech Republic, a move which the Russian government insisted undermined its own national security and necessitated the expansion of its missile systems into Eastern Europe. Although the Russian government denied there was a quid-pro-quo agreement for the U.S. move, the Obama administration is hoping that the change in U.S. policy will help improve relations with Russia and lead to greater cooperation in other areas, including addressing the situation in Iran. However, Russian Prime Minister Vladimir Putin responded to the announcement with a demand for greater U.S. concessions, including support for Russian membership in the World Trade Organization, leading some analysts to speculate that the United States had miscalculated if it believed that its policy change in missile defense would result in a dramatic shift in Russian policy.

On Saturday, the White House announced that President Obama would hold a joint meeting with Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abba on Tuesday. Obama hopes that the meeting will restart peace talks, which reached an impasse last year. U.S. Special Envoy for the Middle East, George Mitchell, has been engaged in shuttle diplomacy to address the stalled talks for more than a week, but Netanyahu remains under domestic political pressure not to make any concessions on the expansion of Israeli settlement activity in the West Bank, a key obstacle for the Palestinians.

In other news from the past week:

1. Last week’s meeting of the Central Committee of the Chinese Communist Party raised questions about who will succeed Hu Jintao as the country’s leader. Most analysts had believed that Vice President Xi Jinping was Hu’s heir apparent, poised to take control of the party (and the country) after Hu steps down in 2012. When Xi was named to the Politburo in 2009, it was assumed that his elevation would follow the same path as Hu’s. Hu’s political power rests in his control of three offices: Secretary General of the Communist Party, President of China, and Chairman of the Central Military Commission. Xi was expected to be nominated to succeed Hu as Chairman of the Central Military Commission on Friday, but no announcement from the Central Committee was forthcoming. Although some analysts believe that Xi’s appointment may be announced at a later date, others believe that Hu may be trying to retain control of key positions, including head of the military, after his 2012 retirement.

2. Efforts to resolve the political crisis in Afghanistan continued over the weekend, as closed-door meetings between foreign envoys, opposition leaders, and representatives of President Hamid Karzai discussed the future of the country. Although President Karzai was declared the winner of last month’s presidential elections by the Afghan elections commission, most observers believe that the vote was badly flawed, with the European Union suggesting that as many as 1 million of Karzai’s votes (which would represent more than ¼ of all votes cast in the election) should be viewed as suspect. Seeking to address the political standoff, the West is pushing for a power-sharing agreement in Afghanistan that would see Karzai claim the presidency but would considerably weaken the office, transferring significant political authority to appointed technocrats.

3. On Thursday, Islamic insurgents launched a suicide bomb attack against African Union peacekeeping forces in Somalia, in a move retaliating against a U.S. strike that killed Saleh Ali Saleh Nebhan, a suspected al-Qaeda leader. The African Union force, comprised primarily of Ugandan and Burundian soldiers, remains understaffed despite being responsible for addressing the threat posed by Islamic radicals intent on toppling the fragile government.

4. The government of Venezuela has been busy courting foreign assistance in developing its oil production facilities. The Venezulan government last week announced the discovery of a “very large” pocket of natural gas offshore, following a similar announcement by the government of Brazil. The Venezulean government announced that it had signed a $20 billion deal with the Russian government and a $16 billion with the Chinese government to expand oil production in the country by as much as 1.35 million barrels per day.

5. The campaign around the Irish ratification vote on the Treaty of Lisbon, scheduled for October 2, has entered full swing. Charlie McCreevy, Ireland’s European Commissioner, delivered a strongly-worded speech to the business community in Dublin suggesting that “international investors would take flight” from the country if it rejected the Treaty. The Treaty, viewed as vital to the continued growth and expansion of the European Union, was rejected by Irish voters in 2008, sparking a furious round of diplomacy to get the Treaty passed. But many observers are forecasting another no vote by Ireland in October could lead to the defeat of the Treaty in other Euroskeptic countries, including Poland and the Czech Republic.