By+JOHN+ROSS

CHINA has overtaken the United States to become the worlds largest goods trading nation. Indeed， since the beginning of the international financial crisis， increases in Chinas foreign trade have been larger than those of the United States， EU and Japan combined.

Even last year， well after recovery from the trough of the “Great Recession，” Chinas trade growth was bigger than that of any other economic center. In particular Chinas increase in imports remained larger than the combined total of the United States， EU and Japan – a key issue for other economies.

This change in global trade has major implications for other countries trade strategies and for ongoing trade negotiations such as the Regional Comprehensive Economic Partnership Agreement （RCEP） and the TransPacifi c Partnership （TPP）.

The scale of the changes in global trade that have taken place since the beginning of the international fi nancial crisis is shown in Figure 1. This illustrates the increases in the total trade of China， the United States， the EU and Japan between 2007， the last year before the crisis， and the end of 2013.

Chinas total merchandise trade in 2013 was US $1，986 billion larger than in 2007 – Chinas exports having increased by US $992 billion and imports by US $994 billion. In comparison， the increase in the U.S. goods trade was US $741 billion， the EU US $1，024 billion， and Japan US $214 billion.

Therefore， not only was the expansion of Chinas trade almost twice that of any other major economic center， but larger than the combined US $1，979 billion of the United States， the EU and Japan.

Taking just a bilateral comparison with the United States， which is important for ongoing trade negotiations， in 2007 Chinas US $2.2 trillion total merchandise trade was only 69 percent of that of the United States. By 2013 Chinas merchandise trade， at US $4.2 trillion， was seven percent bigger than the United States US $3.9 trillion. In six years Chinas trade increased by almost US $2.0 trillion， compared to a U.S. increase of US $0.7 trillion – almost three times that of the United States.

The change was even more dramatic for imports. In 2013 Chinas goods imports were US $993 billion above their 2007 level， whereas U.S. imports were up by only US $311 billion， the EUs by US $329 billion， and Japans by US $212 billion. Chinas imports thus rose by more than three fold those of the United States – and by more than those of the United States， EU and Japan combined. China was， therefore， by a huge margin， the most rapidly expanding market for other countries exports.

Nor has this import situation altered since the Great Recession. Figure 2 shows that OECD data confirm that last year Chinas imports rose by US $132 billion， compared to a rise of US $30 billion for the EU – and falls of US $8 billion for the U.S. and US $53 billion for Japan. Chinas imports rose four fold those of the EU， while the United States and Japan were declining import markets.

Such trends clearly have major implications for world commerce and ongoing trade negotiations.

First， the recent attempt by the United States to reraise the question of the RMB exchange rate was clearly unfounded. On April 8， under a self-explanatory headline“U.S. Warns China after Renminbi Depreciation，” the Financial Times carried an off-the-record briefing by a“senior [U.S.] Treasury offi cial.” It reported a 2.5 percent depreciation of the RMB since its peak earlier this year –a relatively small adjustment， clearly primarily aimed at preventing speculators having a continuous one way bet， and leaving the RMB 33.5 percent above its 2005 level. Despite this， the unnamed U.S. offi cial declared “serious concerns” if the RMB did not show “adjustment” – apparently code for allowing its exchange rate to go up. But the trade data show clearly China has been the worlds most dynamic market for other countries exports， while last year the United States made no contribution.

That China is the worlds most rapidly expanding market for other countries exports， while U.S. import markets have not regained pre-crisis levels， clearly affects Chinas promotion of an Asian RCEP， including India， Japan， South Korea， Australia， and ASEAN， and the United States promoting a TPP excluding China.

Regrettably， current U.S. policy has moved away from supporting a multilateral opening of the world economy. Instead， as Philip Stephens of the Financial Times noted：

“China has been the big winner from the open global economy… each of the proposed new [U.S.] agreements would leave China on the sidelines. The exclusion of the worlds second-biggest economy is more than a coincidence.”

The United States recognizes that a relapse into national scale protectionism， of the post-1929 type， would have disastrous consequences， including for itself， but it has been losing to China in an open and competitive world economy. A way of attempting to limit China is， therefore， to create large trade blocs including the United States rather than a truly multilateral global economy.

But this faces many diffi culties. First， the United States dares not risk serious disintegration of world trade –therefore protectionism must be limited in scope. Second， the United States is not a dynamic import market.

Any country tying itself into a trade bloc with the United States， to the disadvantage of relations with China， is therefore entering a grouping the center of which is a relatively stagnant area of world trade. Despite U.S. political pressure to join， there are definite limits to how much other economies are willing to enter blocs with relatively stagnant trading partners， such as the United States， at the expense of more dynamic ones such as China.

These international trade realities interrelate with domestic political considerations. As global tariffs on manufactured goods are in general already low， the necessary aim of the United States is to negotiate advantages in economic areas where it is particularly strong but where international tariffs and other barriers are still signifi cant. Two of the most important of such sectors are agriculture and services. But these are areas of particular sensitivity in numerous countries. For example， in Japan rural areas are the key electoral base of the Liberal Democratic Party （LDP）， and this is a key reason why protectionism has been maintained in Japans agricultural trade policy. Japans newly signed trade agreement with Australia therefore did not dismantle agricultural trade barriers to the extent the United States wants.

In the United States itself there is significant resistance， particularly from the Democratic Party， to trade concessions in manufacturing and other sectors where developing economies hold competitive advantages. It is therefore diffi cult for the United States to offer proposals making it worthwhile for other countries to accept the domestic political problems that would be created by further opening their economies to the United States in agriculture and services.

Given actual world trade dynamics， Chinas proposals for widespread trade liberalisation， such as the RCEP， will be more beneficial for other countries economies than current U.S. protectionist proposals for the TPP.