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20 March 2013

Dealing with the rise of China requires more free trade, not less

Lee Kuan Yew is the ‘father’ of modern Singapore and, therefore, one of the most successful statesmen of our age. Chinese by ethnicity, rather than citizenship or allegiance, he is well-placed to offer an overview of the developing relationship between China and United States.  

In an interview with the Atlantic, he does not foresee a replay of the old Cold War:

  • “The Soviet Union was contesting with the United States for global supremacy. China is acting purely in its own national interests. It is not interested in changing the world.
  • “There will be a struggle for influence. I think it will be subdued because the Chinese need the United States, need U.S. markets, U.S. technology, need to have students going to the United States to study the ways and means of doing business so they can improve their lot. It will take them 10, 20, 30 years. If you quarrel with the United States and become bitter enemies, all that information and those technological capabilities will be cut off. The struggle between the two countries will be maintained at the level that allows them to still tap the United States.”

However, that doesn’t mean that the military equation is irrelevant – especially when American indebtedness threaten to undermine America’s global reach:

  • “Peace and security both in Europe and in the Pacific still depend on a balance of power. A U.S. military presence in both regions is very necessary. However, unless the U.S. economy becomes more dynamic and less debt laden, this presence will be much reduced by the end of this decade. The longer-term outlook then becomes problematic. Even if U.S. deficits are reduced, industrial productivity improves, and exports increase, the United States nevertheless cannot afford and will not be willing to bear the whole cost of the global security burden.”

It is therefore vital that other rising Asian nations are able to maintain and develop counter-balancing foreign and defence policies of their own. This freedom of action will be compromised if they become economic satellites of People’s Republic. And, as Lee Kuan Yew warns, the best of way of ensuring that they do, is to lock them out of trade with the west:

  • “The U.S. Congress is against any new free-trade agreements (FTAs). If the next Congress continues to oppose FTAs, valuable time will be lost, and it may be too late to try again. Congress must be made to realize how high the stakes are and that the outlook for a balanced and equitable relationship between American and Chinese markets is becoming increasingly difficult. Every year, China attracts more imports and exports from its neighbors than the United States does from the region. Without an FTA, Korea, Japan, Taiwan, and the ASEAN countries will be integrated into China's economy – an outcome to be avoided.”

This warning surely also applies to Europe. The idea that trade policy should be about bestowing special favours (i.e. to former colonies of EU member states) or exerting political pressure (i.e. on exit-minded Britons) is a hopeless anachronism. 

The high price of oil (and therefore shipping and air freight) is already doing enough to encourage the formation of regional trade blocks. We certainly don’t need short-sighted, artificial trade barriers making things worse.


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