Change drives China-US talks

The Bilateral Investment Treaty talks represent a potentially promising area in China-US dialogue. A successful BIT could re-anchor the bilateral economic relationship in the 21st century, support economic reforms in China and energize US companies in the world's largest emerging market. In practice, the BIT talks appear to be secondary to broader, regional trade negotiations, whose outcomes could be inclusionary as well as exclusionary - as seen in recent trade friction between the European Union and China, for instance.

Washington has started paving the way for broad free trade talks with the EU, while preparing for the next stage of negotiations with select Asia-Pacific nations. From the standpoint of the White House, these initiatives are efforts to find new catalysts for economic growth. However, the absence of China from both negotiating tables has prompted Chinese observers to see the talks as efforts to contain China's trade.

Realistically, the US-EU trade talks may raise heat on China, but they could also work for China. As advocates of the US-EU trade pact acknowledge, the proposed deal is likely to take years to negotiate and implement and, hence, will not support recovery policies anytime soon.

Moreover, a deal that would fuel growth and thus imports in the US and Europe could also support Chinese imports, which totaled $808 billion in the two regions last year. Also, the US-EU talks are likely to provide an added incentive for China to negotiate a parallel trade and investment deal with the US.

Whatever the outcome, the net effect of these economic forces is that they will energize multipolar trends from the US to the EU, and from China and Japan to Southeast Asia.

The Obama administration is also preparing for the next round of the Trans-Pacific Partnership talks, which includes Japan and several Asian and Latin American countries, but not China. Indeed, the TPP could have a more direct, proximate and immediate impact on China than the US-EU trade pact.

Over the past decade, some Asian countries and regions have shifted their productive capacity to China. Consequently, an exclusive trade deal would complicate efforts to ship parts to and from Asian countries outside the TPP group and thus jeopardize China's role as the final assembly point.

However, as Europe copes with a "lost decade" and the US must soon begin the exit from liquidity-driven growth, it is China's massive market that will offer growth prospects in Asia and worldwide. An exclusionary approach would increase the TPP countries' pricing pressures and complicate efforts to increase their presence on the Chinese mainland.

An inclusionary approach could offer a way out of the current TPP quagmire. If China were to join the TPP talks, the long-term outcome could be more favorable to the US, Japan, and other Asian and Latin American countries.

As the talks on cybersecurity, US-EU and TPP trade deals indicate, the old unipolar world of military might is giving way to an emerging world of economic multipolarity. It is this transition that now drives US-China talks as well.

The author is research director of international business at India, China and America Institute, a US-based independent think tank, and a visiting fellow at Shanghai Institutes for International Studies and Singapore's EU Centre.