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In the world’s hour of need, China-US pact can be a climate changer

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South China Morning Post
Comment›Insight & Opinion
2014-11-18

Andy Xie

Andy Xie says we all need the United States and China to work together if the world is to unite to tackle global warming and promote free trade

Last week’s Apec summit in Beijing demonstrates the power of cooperation between China and the United States. Significant progress was made on two of the biggest issues in the 21st century – climate control and free trade.

Global warming is probably the most important issue of this century. It has existential consequences for mankind. Even with a low probability of a worst-case scenario, the extreme consequences still warrant maximum effort by all countries to prevent it. Indeed, it is worth a major reduction in living standards. However, every country is hoping that others will do the heavy lifting. Hence, the world has so far witnessed a game of chicken in the negotiations on climate control.

Only China and the US could patch together a global climate deal. The two account for more than 40 per cent of global greenhouse gas emissions and their commitment to time-bound targets will push other countries to join a global pact.

Some US politicians have been quick to argue that China doesn’t have to do anything for 16 years and is getting off lightly in this deal. That is far from the truth.

First, by 2030, China’s per capita income will range between US$15,000 and US$20,000 at today’s price levels – less than half the current level of nations in the Organisation for Economic Cooperation and Development, the international trade forum. It is a huge sacrifice for China to accept peak emissions at such a low income level.

Second, being the world’s factory may account for one-third of China’s current emissions. Without China’s high levels of manufacturing, Europe and the US wouldn’t be able to cut their emissions so easily. If this factor is taken out, then China’s total emissions are similar to those in the US and per capita emissions are only about a quarter.

Third, China has a short history of emissions. The stock of greenhouse gas in the atmosphere is overwhelmingly from OECD countries. China has used the argument to justify a temporary period of high emissions to develop its economy. Now it has committed to the 2030 peak, it is showing it is willing to stop the wrongdoing, as others have.

Global warming binds all countries. Every nation will suffer the consequences of a rise in temperatures and the effects of severe climate change would ensure that living standards were not meaningful at any level. That is the ultimate incentive for China and the US to work together. It is time for a global pact not just to slow, but to reverse, the warming trend this century.

Since the 2008 global financial crisis, the world economy has suffered anaemic growth. The G20 summit in 2013 promised that each member would try to boost growth. But no meaningful result can be observed. The just-concluded G20 meeting in Brisbane tried again. But such efforts won’t work, either. One major factor is that free trade is in retreat.

Strong global growth has been largely driven by the World Trade Organisation framework. As more countries joined, the efficiency gains from rising trade powered the global economy forward. But the WTO process has stalled. Simply put, more members make an agreement less likely.

As the top two economies in the world, China and the US have a responsibility and common interest to move free trade forward. Sadly, the two have different agendas. The US is pursuing the TransPacific Partnership (TPP). It seeks to exclude China, the world’s largest trading economy, for now, hoping that the TPP would eventually force China to join on US terms.

At the Apec summit, China countered with the Free Trade Area of Asia Pacific, essentially a pact among Apec members. The US supported a two-year study on the idea in exchange for China cutting tariffs on IT goods. Considering how many Apec members there are, it will encounter the same problems as the WTO.

The TPP process has stalled. Even if it does succeed, the efficiency gains are too small to make a difference to the global economy. The US is negotiating with Europe on a free-trade agreement. China is doing the same with the Association of Southeast Asian Nations. Neither will happen quickly or be big enough to change the world. What can change the world is for China and the US to form a free-trade agreement. They are not only the top two economies in the world, but are also pro growth and growing much faster than other OECD nations.

Most global growth in the next decade will happen between them. If they form a free-trade pact, others would be pulled in, in order to share the growth. This would be the game changer for the global economy.

Growth and the environment are this century’s top challenges. The world must have both to remain stable. Without either, conflicts will proliferate. To safeguard the environment, growth has to depend on efficiency; trade is a major component.

The Sino-US pact on climate control is a blueprint on how to move the world forward. The two must reach agreement first – to bring the rest of the world along – otherwise, no meaningful change will occur. China and the US may not love each other, but they must work together. After all, they have to live together on this small and fragile planet.

Andy Xie is an independent economist

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