Answer

China’s growing economic engagements with U.S. allies such as the EU, Australia, and key ASEAN countries represent a strategic recalibration in global trade. These partnerships have significant implications for multilateral trade dynamics and the architecture of global economic governance.

Potential Consequences on Multilateral Trade Agreements

• Fragmentation of Global Trade: The proliferation of bilateral and regional trade deals particularly those spearheaded by China can erode the authority of the World Trade Organization (WTO). Competing trade systems with different rules and standards may emerge.
  For example: China’s Belt and Road Initiative (BRI) has led to numerous bilateral trade agreements that bypass WTO frameworks, reducing global trade coherence.
• Weakening of U.S. Trade Norms: As China gains economic influence over traditional U.S. allies, many countries might prefer trade frameworks aligned with China’s policies, potentially diminishing U.S. leadership in global trade.
  For example: The Philippines and several ASEAN nations have increased economic cooperation with China despite being U.S. allies, focusing on trade and investment over geopolitical tensions.
• Shift Toward China-Centric Blocs: China’s growing partnerships with U.S. allies could strengthen blocs like the Regional Comprehensive Economic Partnership (RCEP), marginalizing U.S.-backed agreements like the USMCA or the now-defunct TPP.
  For example: RCEP, which includes China, Japan, South Korea, and ASEAN countries, is the world’s largest trade bloc, covering nearly a third of global GDP, without U.S. participation.
• Increased Regionalism: As multilateralism weakens, countries may turn to regional or bilateral deals, which can offer faster negotiations and tailored benefits. However, this undermines global trade cooperation.
  For example: The India-UAE Comprehensive Economic Partnership Agreement (CEPA) is a regional agreement aimed at enhancing bilateral trade without relying on global platforms like the WTO.
• Rising Protectionism: Changing alliances may trigger protectionist measures as nations prioritize strategic autonomy, leading to increased tariffs, trade wars, and restrictions.
  For example: The U.S.-China trade war led to tit-for-tat tariffs on hundreds of billions of dollars’ worth of goods, disrupting global trade flows and increasing uncertainty.
• Impact on Supply Chains: As nations reassess their alliances, they may reroute supply chains to reduce dependency on adversarial partners. This realignment can increase costs and reduce efficiency.
  For example: After the COVID-19 pandemic and rising tensions with China, many countries including the U.S. and Japan began shifting supply chains away from China to countries like Vietnam, India, and Mexico.
• Exclusion of Emerging Economies: China-led trade agreements may sideline other emerging economies by prioritizing China’s market access and terms. Countries like India, which opted out of RCEP, may face limited trade opportunities.
  For example: India withdrew from RCEP in 2019 due to concerns over market flooding by Chinese goods, leading to fears of marginalization in Asia-Pacific trade networks.

Potential Consequences on Global Economic Governance

• Shift in Power: China’s growing influence may erode U.S.-led institutions like the IMF and World Bank, promoting alternatives such as the AIIB and shifting global economic power.
• Undermining Global Norms: China’s rise challenges free-market principles, pushing a state-capitalist model that prioritizes state control over markets.
• Erosion of U.S.-led Order: China’s initiatives, like the Belt and Road Initiative (BRI), could bypass Western-led systems, leading to a China-centric global governance framework.
• Competition Between Institutions: Chinese-led platforms could fragment global economic governance, with countries aligning with different blocs based on strategic interests.
• Shift in Global Standards: China’s push for global leadership could result in new economic standards prioritizing its interests, especially in technology and trade.
• Challenges to Democratic Governance: China’s influence may hinder democratic countries’ ability to advocate for human rights and transparency in global governance.

Stance India should adopt in response to these developments

• Balancing Diplomatic Engagement: Strengthen ties with both, ensuring strategic autonomy, focusing on defense, security, and technology. Actively participate in WTO, G20, and BRICS to advocate for a fair global economic order.
• Diversifying Trade Relations: Forge trade agreements with Europe, ASEAN, and Africa to reduce dependence on China. Focus on strengthening RCEP and IPEF for better market access.
• Promoting Economic Resilience: Enhance capabilities in sectors like electronics, pharma, and renewable energy. Make markets more competitive to attract global investment.
• Countering China’s Influence in Asia: Deepen trade and security relations with Vietnam, Malaysia, and Thailand. Partner with U.S. and Europe on emerging technologies.
• Leveraging Multilateral Trade Negotiations: Push for fair practices in global forums, targeting unfair Chinese trade actions. Ensure WTO remains an effective dispute resolution body.

China’s growing economic influence may disrupt global trade and governance, shifting power toward China-led frameworks. India should balance ties with both the U.S. and China, diversify trade, and strengthen economic resilience. Active participation in multilateral forums is crucial to protecting India’s interests.

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