Demonstrators at a protest near the Chinese embassy in New Delhi, June 17.
Photo: sajjad hussain/Agence France-Presse/Getty ImagesViolent clashes between Indian and Chinese soldiers in the Himalayas threaten to sour the political relationship between Beijing and Delhi. The incident is also a bleak reminder of why China has a difficult time taking the leadership in trade relations that it should naturally occupy in Asia.
India is a perennial heel-dragger when it comes to trade agreements. It isn’t a member of the Japan-led Comprehensive and Progressive Trans Pacific Partnership, and its decision not to join the Regional Comprehensive Economic Partnership last year put the brakes on the large but limited China-led trade pact.
Though there are few high-level economic linkages with India at risk, the violence that Delhi says saw 20 of its soldiers die fits into a broader picture of the regional tussles that undermine China’s ambitions to take a central role in commercial diplomacy. The tussles also affect its ability to set the tone for cross-border regulatory regimes.
Earlier this month and obscured by bigger news elsewhere in the world, Vietnam ratified the EU-Vietnam free-trade agreement already approved by the EU. The deal will eliminate the lion’s share of tariffs in each direction, and phases others out over the years ahead. A new investment protection agreement is still awaiting ratification.
Two months prior, the Vietnamese government alleged that a Chinese ship rammed and sank a fishing vessel in contested waters in the South China Sea. That prompted a message of support even from the government of the Philippines, which is increasingly diplomatically aligned with Beijing.
Relations with Australia have taken a turn for the worse too. The Australian government supported an investigation into any early missteps that contributed to the coronavirus pandemic, and the Chinese government has warned its citizens against travel to the country, citing racial discrimination and violence. China placed an 80.5% tariff on Australian barley last month.
Given these circumstances, Premier Li Keqiang’s recent suggestion that China could join the CPTPP looks fanciful. Economists Peter Petri and Michael Plummer suggest China’s membership could quadruple annual income gains from the pact to $632 billion. But China would have to discard totemic elements of its economic policy: Much support for domestic production and some for state-owned enterprises would have to go, and intellectual property protections would have to be much more seriously enforced.
China took the position as Asia’s largest exporter more than a decade and a half ago, and today easily sells more than $200 billion overseas in a typical month. That’s more than India, Japan, Australia, South Korea and Vietnam combined. And yet, Japan, now an exporting nation of the second tier, is still the obvious leading light in trade diplomacy.
As long as it clashes again and again on issues of territorial integrity with its neighbors, Beijing will find that, no matter how large its exports, it continues to play second fiddle in establishing the building blocks for trade relations in Asia.
Write to Mike Bird at Mike.Bird@wsj.com
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