Sten china article 16x4.5

It is important for Gothenburg that Sweden stands up for free trade within the EU

Debate

After Culture Minister Amanda Lind took part in the Swedish PEN awards ceremony, which recognised Swedish-Chinese publisher, Gui Minhai, China has stepped up its negative tone towards Sweden, and threatened to restrict future trade and cultural exchange. For Gothenburg, it is now important that Sweden safeguards free trade and multilateralism and push this within the EU, writes Sten Tolgfors, former Minister of Commerce, among others. In line with China's economic growth, the country's acceptance of external viewpoints has decreased, while the desire to influence other countries has grown. This has led to increasing friction in trade and investment, as well as clearer political conflicts. For Gothenburg, development is of the utmost importance.

China has long regarded Sweden as a gateway to the EU. Sweden was seen as a small, free-trade-friendly, country, with an influence on the EU’s common trade policy. Sweden was appreciated for its high proportion of globally leading companies operating in China. There they conducted manufacturing and development in jointly owned companies with the world as a market. Hundreds of thousands of Chinese jobs were dependent on Swedish companies early on in the development of globalization.

Threats to the country's growth

Swedish environmental technology was important when China saw the environmental degradation that followed decades of rapid economic expansion and threatened the country's growth. In 2007, when Chinese President Hu Jintao made a state visit to Sweden, trade in commodities with China represented 2 percent of Swedish exports. Today, the share is 4.5 percent.

When these new types of harsh statements about restricting trade and cultural exchanges with Sweden appear, there is reason to believe that this is a strategic change for China. There are several economic and political reasons for this.

China became a WTO member 19 years ago and focused on operating in a regulatory international trade regime. In this, there was some acceptance that trade between countries, or within individual product groups and services, may be asymmetric, but that both individual countries and the global economy, in total, gains from trade.

Testing the strength of major powers

In recent years, however, the belief in politically controlled trade has grown. That is, trade where asymmetries are criticized and where conflicts are not resolved through established conflict resolution mechanisms but through political measures. Respect for international trade mechanisms diminishes when potential gains from using political measures to gain benefits are demonstrated. Trade regimes will then be in a power-struggle between major economic actors. In such an arrangement, smaller actors will be on the losing side.

When the US wants to control trade with China politically, it serves to legitimise political intervention in trade regimes. However, economic nationalism or unilateralism - American, European or Chinese - is in contrast to a functioning regulated multinational trade regime and global wealth creation. Political control of trade, where advantages and disadvantages are to be distributed and redistributed – can result in economic losses for everyone involved.

The next step, which must be avoided, is pressure on international institutions such as the WTO and the IMF to be repurposed to adapt to the wishes of large countries. For Sweden, it is central that the WTO be protected, with respect for a free market, international trade mechanisms and a regulatory trade regime.

Economically stronger

The EU and the US have long criticized China for state aid to companies, difficulties in identifying business owners, political governance of companies and asymmetric direct investment and ownership rules. But China is now so much stronger financially that the country's opportunities to act unilaterally have grown. Chinese ownership, investment, control over value chains and certain strategic commodities create dependencies that increase China's relative strength.

It is estimated that China's share of the global economy will grow to about 25 percent by 2030. China will thus be the single largest economy, not just in purchasing power-adjusted GDP. But at the same time, the EU and the US, together, are estimated to represent just over 35 percent and the world's democracies together account for more than 65 percent of the world economy.

The European Commission expressed solidarity with Sweden when signals of curtailed trade started to come. It is through the EU that Sweden can meet China.

The EU and the US are facing a historic change in the global order, with China increasingly translating its economic weight into political and security policy influence. Foreign and security policy is at the heart of the transatlantic link, but China's emergence means that the transatlantic link must also be viewed in economic terms. Neither the EU nor the US can handle future trade policy challenges individually. Economic and political cooperation is necessary.

Functioning trade relationship important

China's actions signal a strategy change. China seeks to take its place as a major power. For Gothenburg, it is important that Sweden protects free trade, multilateralism and drives this within the EU. It is through international institutions and agreements that small, trade-oriented countries can assert themselves.

But a well-functioning trade relationship is important not only for Sweden and the EU, but also for China. Formal market access follows from trade agreements. However, real market access follows from people's actions, as consumers and voters. If China puts pressure on individual countries, it will affect consumer behaviour. When contrary to people's views and perceptions, politically controlled trade can’t be effective in the long-term.

Written by:

Sten Tolgfors, former Minister of Commerce and Minister of Defence, now a partner at Rud Pedersen Public Affairs

Christer Ljungwall, fil. Dr. of National Economics, Gothenburg-based China Expert