22 August 2019
Barack Obama and Xi Jinping are expected to focus on trade-related issues during the upcoming APEC meeting in Beijing.
Barack Obama and Xi Jinping are expected to focus on trade-related issues during the upcoming APEC meeting in Beijing.

What will Obama and Xi discuss at the APEC meeting?

The APEC summit, which will kick off with a ministerial gathering in Beijing Friday and conclude with a two-day “Economic Leaders’ Meeting” next week, is the top focus for the Chinese government right now.  

Authorities are making every possible effort to make sure that the event goes off smoothly. Security has been tightened following reports that pro-democracy student activists from Hong Kong plan to stage a protest in the Chinese capital during the summit.

With US President Barack Obama among the foreign leaders attending the key annual Asia-Pacific event, Chinese officials know that global media attention will be intense.

During the summit, Obama and his Chinese counterpart Xi Jinping are expected to exchange views on a number of issues. Now, what will they actually talk about?

This is a big week for the US, which has just had its mid-term elections. According to early results, Republicans have made major gains, putting the party closer to its goal of recapturing the Senate and tipping the balance of power away from Obama and the democrats.

Does this mean the political deadlock between the Congress and the Obama administration will continue for the next two years?

Yes, that could indeed be the case on most of the issues, but there will be at least one exception — the free-trade Trans-Pacific Partnership (TPP). The TPP could, in fact, serve as the ice breaker between Obama and the Republican lawmakers who are mostly free-trade supporters.

By successfully implementing the TPP, Obama could have one more legacy when he leaves the White House, while the Republicans could gain voters’ support in the 2016 presidential election by touting their backing for the free-trade agreement.

And this is what Obama would want to talk about when he meets Xi.

TPP is a high standard trade agreement that would include 12 countries on both sides of the Pacific—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US and Vietnam, while intentionally excluding China.

There are two main areas which show TPP’s high standard: it aims to eliminate all tariffs between members, and second, it covers all the main areas of multilateral interest including intellectual property, government procurement and competition policy.

In the view of US, pushing the TPP is a major strategic tool in the “rebalancing to Asia” strategy, as it could help suppress the influence of China in the Asia-Pacific region.

Meanwhile, from the Chinese perspective, there is a need to play down the importance of TPP. Beijing aims to champion its own version of free trade agreement— the Free Trade Area of the Asia-Pacific (FTAAP).

If we talk about the economic and trading benefits, FTAAP can actually be far mightier than the TPP. According to the estimates from the think tank Peterson Institute of International Economics, by 2025, the FTAAP could help the US gain about US$626 billion in exports, while China would gain a whopping US$1.6 trillion.

The US would gain far less in exports (about US$191 billion) under the TPP, but the deal would cost China about US$100 billion in lost exports if the country is excluded from the partnership.

Although joining the FTAAP would be more beneficial to US, the country still focuses on pushing TPP. In fact, the US has just blocked China’s effort to use APEC to begin negotiations on the FTAAP. This reflects Washington’s aim to rein in China’s influence in Asia even at the expense of its own interests.

Now, some might argue: why bother creating two new free trade agreements, when there are already lots of different free-trade treaties in the Asia Pacific region? 

In the past few years, many free-trade agreements were signed between different countries in the Asia-Pacific region, but many of them were bilateral and trilateral. The situation has created a “spaghetti bowl effect”. Instead of lowering the trading threshold, numerous free-trade agreements with different standards in the region have increased the cost of trading.

Both TPP and FTAPP are mega free-trade agreements; they emerged as a way to overcome the effect of overlapping and conflicting elements of the copious trade pacts.

With Washington and Beijing wrestling on the trading issues, observers are interested in how things would play out eventually.

Will Obama offer Xi a seat in the TPP, in exchange for the latter to slow things down on FTAAP? This may be one of the possible scenarios.

Last month, China officially voiced its interest in joining the TPP for the first time. Vice finance minister Zhu Guangyao said “TPP is incomplete without China’s participation”.

The comments suggest that China is not willing to be left behind in the US-led free trade agreement, and that Beijing aims to mark a stronger presence on the world stage on economic issues.

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EJ Insight writer

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