Transatlantic trade: Is China in or out?

The TTIP is the proposed free trade union between the United States and the European Union. If adopted, it would create a trade zone with a value of nearly $34 trillion in GDP, nearly twice that of NAFTA. The TTIP will be huge, representing almost half the planet’s total economic output.

The little coverage that has been given to the TTIP has largely involved concerns from individual countries over local industries (particularly the French film industry), European anger over the NSA’s reported activities, and disagreement over genetically modified foods. Industry exemptions and similar concerns are standard fare in trade negotiations, and it’s a safe bet that the necessary deals will be struck to push the overall agreement through. European concerns over the NSA are heartfelt, but they are a matter for foreign ministers to address – the TTIP negotiations were the most immediate forum for Berlin and Paris to express their displeasure, nothing more.

At base, the TTIP is too advantageous to all parties to reject it.  It’s projected to give a GDP boost of $122 billion per year to the United States and allow it unfettered access to European markets, and the Europeans would make similar gains. The harmonization of regulations would mean that an American consumer could trust that equipment built in Germany would meet U.S. safety standards and vice versa. Tellingly, its opening round of negotiations just concluded in Washington without much incident.

So if the TTIP isn’t especially controversial and its member states seem inclined to smooth off its rough edges, why is it significant?

China.

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The TTIP isn’t just about lowering trade barriers between America and Europe; it’s also about setting rules.  It will harmonize regulations for the entire trade area, potentially including everything from rules on state-owned enterprises to intellectual property rights to government subsidies. With the creation of a trade and regulatory zone so large, and one that sets requirements for how nonmembers will access it (and the penalties to pay for not playing along), America and Europe will set the rules for the global standard of free market enterprise.

It’s a cliché to describe China as either the potential engine of 21st century capitalism, or as a rogue powerhouse that evades the rules - or some mixture of the two. Regardless of its intentions, China’s economic rise is a fact, and its growing clout as a manufacturing center, labor force, and economic engine over the coming decades is a certainty. The question then becomes: How will Beijing get along with its global neighbors?

China’s trade record with other countries has been marred by claims of dumping, unsafe products, and consistent complaints over intellectual property rights violations, but the consequences to Beijing have been marginal. The creation of a massive trade bloc has the potential to change this dynamic. A robust TTIP advantages U.S. and EU companies, boosting their competitiveness and expanding their market share.  Billions of dollars worth of Chinese products would be less competitive in the U.S. and EU markets. China could see its exports bottled up within its shores.

Will China accept the challenge of adopting the norms of developed capitalism as it grows, or will it continue to flout international standards as it becomes more powerful? No individual country has the influence to persuade China to play by the rules. No country’s market is so big on its own that the threat of tariffs is enough to curb Beijing’s behavior.  The TTIP zone would change that. It would present China with the choice of joining in or potentially being frozen out.

Even though the Western press has largely overlooked this dimension of the TTIP, Beijing most assuredly has not. Intermittent claims of a potential trade cold war are bubbling up in Chinese media, and they’re likely to intensify as the TTIP negotiations advance. Moreover, developing countries would be more likely to harmonize their rules in line with the principles of a well-designed TTIP.  This is of particular concern to China, which is spending billions to pull governments into its economic orbit.

In light of such points, it’s important to note that the establishment of the TTIP should not be interpreted as an overtly aggressive move against China. Instead, it’s an opportunity for Beijing to formally make common cause with the developed economies of the world.

China will have the chance to raise its standards and show that it can be an equitable partner in trade and regulations with all the other developed economies on Earth. The TTIP will be China’s opportunity to prove its intentions. 

Grant is an adjunct fellow at the American Security Project, a nonpartisan think tank who will be hosting an event on these issues on July 31, 2013.