Mutual free trade seen as a win-win route to a global open economy
Explore how reciprocal free trade presents a mutually beneficial approach to cultivating an open global economy. This article delves into the advantages and implications of fostering trade agreements that prioritize shared benefits for all parties involved.
TroibNews 
**Editor's Note:** The following article was authored by Zhou Jianjun, an assistant researcher at the Institute of State System Research and School of Economics, Zhejiang University. The opinions expressed are those of the author and do not necessarily reflect the views of CN.
The current multilateral trade system is facing significant challenges, with an alarming rise in global protectionism. During the Summer Davos 2024 held in Dalian, China, Premier Li Qiang emphasized that China is committed to fostering an open world economy and will reject divisive bloc confrontations and economic decoupling.
Free trade serves as the cornerstone of economic prosperity, and a high-level opening up is vital to sustaining it. Prior to the 1990s, global trade was largely hindered by confrontation, significantly restricting free trade. The conclusion of the Cold War ended the bipolar stand-off between the United States and the Soviet Union, paving the way for a new chapter in global trade.
The establishment of the World Trade Organization (WTO) in 1995, which succeeded the General Agreement on Tariffs and Trade (GATT), standardized free trade as a fundamental principle in international economic relations. China's accession to the WTO in 2001 was a pivotal moment, integrating a major economy with vast market potential into the global open economy and thereby enhancing global market openness. China's promotion of free trade and high-level opening has been a substantial driver of the global economy, with its contribution to global economic growth increasing from below 10 percent to over 30 percent, positioning it as a leading force in global economic development.
Isolationist policies and trade protectionism contradict the prevailing trends of our time, while decoupling and disruptions in supply chains threaten to significantly harm the global economy. In a widely interconnected global production network, countries are increasingly reliant on one another. The optimal allocation of resources can only be achieved through the promotion of free trade and by fully utilizing each nation's comparative advantages, ultimately reducing production costs and maximizing welfare.
Although market isolation and protectionism might appear to provide a buffer for domestic industries against external shocks, they ultimately hinder domestic growth and stifle innovation while significantly increasing production costs. The burden of these costs inevitably falls on ordinary consumers, thus raising living expenses, particularly for lower-income households. Following the intensification of trade tensions between China and the U.S., Moody's estimated that 92 percent of the tariff burden would be shouldered by American consumers, leading to an annual increase of $1,300 in average household expenditure. Should the decoupling and supply chain disruptions initiated by the U.S. continue to escalate, the resultant decline in trade ties could force countries back into isolationist policies, severely stunting global economic growth.
Advocating for free trade and high-level opening necessitates collective action from all nations, with both China and the United States playing crucial roles. As the largest developing and developed economies, respectively, China and the U.S. embody a G2 dynamic in the global economy; both nations prosper in harmony and suffer in confrontation.
The pursuit of free trade and high-level opening requires global cooperation. Consequently, it is essential for both China and the U.S., particularly the latter, to take on leadership roles. However, the U.S. has repeatedly imposed additional tariffs on Chinese goods and has adopted policies aimed at blocking imports from China, undermining the ideals of free trade.
U.S. tariff increases have targeted not just China but also other nations. Former President Trump committed to imposing new tariffs on neighboring countries like Canada and Mexico, and even suggested blanket tariffs on all imports to protect domestic manufacturing. These trade restrictions, dubbed measures for "de-risking," pose significant threats to the global economy. The ripple effects of these restrictions could lead other nations to follow suit, igniting a worldwide wave of trade protectionism and tariff hikes.
In response, China is actively embracing its responsibilities as a major global player. It is working to enhance trade negotiations with European and American nations, aiming to eliminate unreasonable tariffs that threaten the free trade framework.
China's commitment to free trade and mutual benefits has been steadfast, as it endeavours to facilitate the construction of an open world economy. Since joining the WTO, China has consistently promoted free trade and initiated high-level openings. This includes reforming systems incompatible with WTO rules, abolishing numerous regulations at odds with free trade, reducing import and export tariffs, and loosening restrictions in heavily regulated sectors to provide better access to its market. Additionally, China has launched several innovative initiatives to address contemporary demands, such as the China Railway Express and the Belt and Road Initiative, alongside the expansion of free trade zones, development of free trade ports, and progress on the Regional Comprehensive Economic Partnership. These measures are designed to foster an open world economy, dismantle market access barriers, combat trade protectionism, and promote the global advancement of free trade.
The journey toward building an open world economy remains challenging, with China positioned to serve as a model. Sustaining global free trade and advancing an open world economy require ongoing collective efforts. China can proactively introduce additional incremental measures to enhance its high-level opening approach.
To begin, China can accelerate the establishment of international transport networks across land, sea, and air for improved global connectivity. This could involve expanding the existing New Eurasian Land Bridge with additional routes reaching more countries. Maritime transport should see enhanced construction of overseas ports and new dedicated shipping routes, such as the "Cherry Express" for direct delivery of Chilean cherries to China. In aviation, adding more international routes and direct flights will facilitate stronger connections between Chinese and foreign cities.
Secondly, China can focus on further eliminating market access barriers and optimizing the efficiency of exchanges involving personnel, capital, and information. Enhancements could include widening visa exemption eligibility, streamlining visa processes, and extending the duration of visa-free stays to facilitate easier access for foreign visitors. For capital, cross-border capital flows could be simplified, limits on foreign exchange for residents increased or removed, and direct trade settlements in renminbi encouraged to bolster the currency's international use. When it comes to information, expanding pilot projects for greater access to the international internet and allowing foreign apps and media within legal bounds will enhance information flow.
Lastly, China can continue to deepen institutional opening by aligning with high-standard international trade and economic regulations. Free Trade Zones could serve as testing grounds for innovative, integrated institutional measures that can be replicated on a broader scale. Efforts should be geared toward enhancing fundamental systems in areas such as market access, protection of property rights, and data management to ensure a seamless alignment with high-standard international trade protocols.
James del Carmen contributed to this report for TROIB News
The current multilateral trade system is facing significant challenges, with an alarming rise in global protectionism. During the Summer Davos 2024 held in Dalian, China, Premier Li Qiang emphasized that China is committed to fostering an open world economy and will reject divisive bloc confrontations and economic decoupling.
Free trade serves as the cornerstone of economic prosperity, and a high-level opening up is vital to sustaining it. Prior to the 1990s, global trade was largely hindered by confrontation, significantly restricting free trade. The conclusion of the Cold War ended the bipolar stand-off between the United States and the Soviet Union, paving the way for a new chapter in global trade.
The establishment of the World Trade Organization (WTO) in 1995, which succeeded the General Agreement on Tariffs and Trade (GATT), standardized free trade as a fundamental principle in international economic relations. China's accession to the WTO in 2001 was a pivotal moment, integrating a major economy with vast market potential into the global open economy and thereby enhancing global market openness. China's promotion of free trade and high-level opening has been a substantial driver of the global economy, with its contribution to global economic growth increasing from below 10 percent to over 30 percent, positioning it as a leading force in global economic development.
Isolationist policies and trade protectionism contradict the prevailing trends of our time, while decoupling and disruptions in supply chains threaten to significantly harm the global economy. In a widely interconnected global production network, countries are increasingly reliant on one another. The optimal allocation of resources can only be achieved through the promotion of free trade and by fully utilizing each nation's comparative advantages, ultimately reducing production costs and maximizing welfare.
Although market isolation and protectionism might appear to provide a buffer for domestic industries against external shocks, they ultimately hinder domestic growth and stifle innovation while significantly increasing production costs. The burden of these costs inevitably falls on ordinary consumers, thus raising living expenses, particularly for lower-income households. Following the intensification of trade tensions between China and the U.S., Moody's estimated that 92 percent of the tariff burden would be shouldered by American consumers, leading to an annual increase of $1,300 in average household expenditure. Should the decoupling and supply chain disruptions initiated by the U.S. continue to escalate, the resultant decline in trade ties could force countries back into isolationist policies, severely stunting global economic growth.
Advocating for free trade and high-level opening necessitates collective action from all nations, with both China and the United States playing crucial roles. As the largest developing and developed economies, respectively, China and the U.S. embody a G2 dynamic in the global economy; both nations prosper in harmony and suffer in confrontation.
The pursuit of free trade and high-level opening requires global cooperation. Consequently, it is essential for both China and the U.S., particularly the latter, to take on leadership roles. However, the U.S. has repeatedly imposed additional tariffs on Chinese goods and has adopted policies aimed at blocking imports from China, undermining the ideals of free trade.
U.S. tariff increases have targeted not just China but also other nations. Former President Trump committed to imposing new tariffs on neighboring countries like Canada and Mexico, and even suggested blanket tariffs on all imports to protect domestic manufacturing. These trade restrictions, dubbed measures for "de-risking," pose significant threats to the global economy. The ripple effects of these restrictions could lead other nations to follow suit, igniting a worldwide wave of trade protectionism and tariff hikes.
In response, China is actively embracing its responsibilities as a major global player. It is working to enhance trade negotiations with European and American nations, aiming to eliminate unreasonable tariffs that threaten the free trade framework.
China's commitment to free trade and mutual benefits has been steadfast, as it endeavours to facilitate the construction of an open world economy. Since joining the WTO, China has consistently promoted free trade and initiated high-level openings. This includes reforming systems incompatible with WTO rules, abolishing numerous regulations at odds with free trade, reducing import and export tariffs, and loosening restrictions in heavily regulated sectors to provide better access to its market. Additionally, China has launched several innovative initiatives to address contemporary demands, such as the China Railway Express and the Belt and Road Initiative, alongside the expansion of free trade zones, development of free trade ports, and progress on the Regional Comprehensive Economic Partnership. These measures are designed to foster an open world economy, dismantle market access barriers, combat trade protectionism, and promote the global advancement of free trade.
The journey toward building an open world economy remains challenging, with China positioned to serve as a model. Sustaining global free trade and advancing an open world economy require ongoing collective efforts. China can proactively introduce additional incremental measures to enhance its high-level opening approach.
To begin, China can accelerate the establishment of international transport networks across land, sea, and air for improved global connectivity. This could involve expanding the existing New Eurasian Land Bridge with additional routes reaching more countries. Maritime transport should see enhanced construction of overseas ports and new dedicated shipping routes, such as the "Cherry Express" for direct delivery of Chilean cherries to China. In aviation, adding more international routes and direct flights will facilitate stronger connections between Chinese and foreign cities.
Secondly, China can focus on further eliminating market access barriers and optimizing the efficiency of exchanges involving personnel, capital, and information. Enhancements could include widening visa exemption eligibility, streamlining visa processes, and extending the duration of visa-free stays to facilitate easier access for foreign visitors. For capital, cross-border capital flows could be simplified, limits on foreign exchange for residents increased or removed, and direct trade settlements in renminbi encouraged to bolster the currency's international use. When it comes to information, expanding pilot projects for greater access to the international internet and allowing foreign apps and media within legal bounds will enhance information flow.
Lastly, China can continue to deepen institutional opening by aligning with high-standard international trade and economic regulations. Free Trade Zones could serve as testing grounds for innovative, integrated institutional measures that can be replicated on a broader scale. Efforts should be geared toward enhancing fundamental systems in areas such as market access, protection of property rights, and data management to ensure a seamless alignment with high-standard international trade protocols.
James del Carmen contributed to this report for TROIB News
