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It’s time for the mother of all trade deals: A China-US Economic Agreement

Since the inauguration of Donald Trump last January, it can seem as if the world of international trade is falling apart. First Trump withdrew from the TPP, then he forced the reopening of NAFTA. On the other side of the Atlantic, Brexit talks seem deadlocked, with a “hard Brexit” on “WTO rules” an increasingly likely option. And when the remaining 11 members of the rump TPP decided to move ahead with a “Comprehensive and Progressive Agreement for Trans-Pacific Partnership,” they stripped out all of the powerful governance provisions, reducing the deal to little more than an old-fashioned tariff-reduction pact. Queue increased quotas on imported cheese.

Not that the governance provisions in the old TPP were very good, or very democratic. But the truth is that the TPP, like the European Union that the UK is (presumably) leaving, was more than just a trade treaty. It was a wide-ranging economic governance agreement. The CPATPP and internationalist grumbling about the supposed passing of the liberal world order notwithstanding, governance agreements like the late-lamented TPP are the future of trade deals (if they have any future at all). In the 21st century economy, tariff levels are becoming increasingly irrelevant. That’s why virtually no one cares anymore about the WTO (remember the Battle of Seattle?). The big game today isn’t the “what” of the world-economy. It’s the “how.”

Just look at the leading firms of the emerging sectors of the millennial economy, and it becomes obvious that “what” is out and “how” is in. Google, Facebook, Amazon, Baidu, Tencent, Alibaba, Uber, Airbnb, Ofo, Mobike, Didi, even SpaceX and of course Apple … they are all focused on making money by changing how we live, not just what we buy. General Motors figures it will soon be a technology company, not a car company. Tesla already is. The two things nearly all these millennial stocks have in common is that they are all focused on process, and they are all based in the US and China. Shenzhen and Silicon Valley are merging into one giant technology hub: call it Calichina.

Which is why the US and China should take the lead in forging an economic governance structure for the 21st century Calichina i-economy: a China-US Economic Agreement (ChUSEA; let’s pronounce it “choosy”). Instead of the messy TPP, with 12 countries negotiating a ridiculously complicated agreement that China might never join, the US and China should simply settle a bilateral pact that the rest of the technology leaders of the Pacific will have to join to stay in the game. Forget about opening Japan’s agricultural sector or setting maximum penalty tariffs for steel. The ChUSEA should pick and choose, focusing only on the sectors and issues that really matter for 21st century technological innovation.

A well-crafted ChUSEA would start by opening up the Chinese internet — in exchange for opening the US market to Chinese firms, which today are often excluded on national security grounds (witness Alibaba’s failed attempt to purchase MoneyGram). That’s not as inconceivable as it sounds. China could open its internet to US firms even while retaining the authority to block specific websites for content. After all, the US essentially demands the same authority, though for different reasons and with different enforcement mechanisms. While the Chinese government clumsily blocks news and opinion sites, the US government empowers firms to enforce ridiculously extensive copyrights through (the threat of) intellectual property lawsuits.

Corporate digital rights management (DRM) and heavy-handed state censorship may sound very different, but from a technical standpoint they are very similar — and they are not going away. So they may as well be regulated in a clear and consistent way. It’s ridiculous that on some days your Gmail works in China while on other days it doesn’t … just as ridiculous as the fact that sometimes you can get away with posting copyrighted content on YouTube but other times you can’t. A ChUSEA standard would in effect become the global standard, or at least the global non-EU standard, and it is hard to imagine the EU holding out for long.

The ChUSEA should focus on governing the architecture of the i-economy, not the content. Americans would love to eat out using the WeChat payments ecosystem, and Chinese would love to have Dropbox managing their cloud storage needs. The US and Chinese online economies are complementary and mutually reinforcing; let consumers choose who they like and who they trust. We can agree shared systems standards for maintaining privacy and turning information over to government authorities, even if we can’t agree about the conditions under which governments can spy on their citizens. Let Chinese law apply in China and US law in the United States, but harmonize the underlying technical standards under which the data themselves must be stored.

The ultimate goal of the ChUSEA should be to ensure that when you want to develop an app to do something useful, the only barrier to rolling it out simultaneously in the US and China is setting the interface language. If the US and China can get their act together, other Pacific technology powerhouses (Japan, South Korea, Taiwan) will follow along out of sheer necessity, and the rest of the world will face the choice of signing on or logging off the internet entirely. When it comes to pushing forward innovation in the app economy, the US and China are the only countries that really matter. So let’s get a ChUSEA deal to move the 21st century forward a notch. Forget about trade. Even forget about investment. The future is intangible. Messrs. Xi and Trump, let’s make a deal.

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Sydney-based globalization expert Salvatore Babones is available to speak on the Chinese economy (demographics, growth, technology), the Belt & Road Initiative, global trade networks, and Australia-China relations. Contact: