Can the United States, China and Russia Cooperate on Trade?

The 2016 G20 summit in Hangzhou is fast approaching and, similar to the pre-summit meetings hosted by China throughout the year, the focus will be the state of the global economy. Still contending with sluggish global economic growth, the summit’s theme of “Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy” is especially timely. Under the umbrella of global economic growth, cultivating opportunities for trade and investment will become a major priority for G20 states, and three global powers—the United States, China, and Russia—are each developing their own multinational trade route projects. These major trade projects could serve as opportunities for cross-country cooperation and growth, but they could also become sources for future conflict.

China’s management of domestic markets, currency, and commitment to structural reforms was a cause for global concern at the first meeting of G20 Finance and Central Bank Governors in February. At next week’s summit, China’s President Xi Jinping will undoubtedly point out China’s efforts towards realizing supply-side structural reforms in the face of China’s “new normal” of slower economic growth. As part of these reforms aimed at rebalancing China’s economy, Beijing plans to cut industrial overcapacity, tackle overhanging debt, reform state-owned enterprises, and seek out new consumer markets. On the last point, Beijing is championing its New Silk Road Initiative (also known as “One Belt, One Road”), a major state project focused on opening up new markets. To accomplish this, Beijing is building vast trade networks spanning several countries and continents, by land and by sea. However, many countries are wary. The project, billed as purely an economic one, may evolve to include a political and/or military dimension as well.

Similarly, Russia is looking to build new economic opportunities and trade links in the face of continued western economic sanctions and an ongoing bearish global hydrocarbons market. Its project, the Eurasian Economic Union (EEU), is based on its precursor organization, the Eurasian Customs Union. Since coming into force on January 1, 2015, the EEU has managed to increase trade amongst its members, which at present include Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan. However, this intra-regional economic union has been slow to deliver significant economic advantages for its member states and, in fact, may be having the reverse effect on their economies: due to their close economic links to Russia, they too have inadvertently been suffering fallout from Russia’s economic troubles. Anders Åslund of the Atlantic Council argues that the EEU is actually isolating the economies of its member states and blocking out more beneficial economic relationships, particularly with the EU. Even the initial proponent of the EEU, Kazakhstan’s President Nursultan Nazarbayev, has himself appealed to EEU state leaders for closer integration with both the EU and China’s New Silk Road project.

Finally, the relatively unknown U.S. New Silk Road Initiative is seeking to bring about economic integration and growth by encouraging trade links between South Asian and Central Asian states, and especially with Afghanistan. As the United States aims to drawdown its military presence in Afghanistan, the New Silk Road project could portend a shift to economic concerns. By helping Afghanistan to establish an economic foothold through regional trade, the United States hopes to foster greater stability. On the other hand, getting Afghanistan to stand on its own feet economically could prove difficult in a country rife with internal issues. Also, opening up trade links with Afghanistan as part of the U.S. New Silk Road Initiative could mean that Afghanistan’s various domestic and drug trade problems may spill across borders, having the reverse effect of what was intended, by increasing regional instability instead of calming it. 

Though the potential for cooperation exists, and conflict is not inevitable, how these three major projects espoused by three global powers will interlock will be debated well beyond the conclusion of the upcoming G20 summit and into the future. All three of these trade and investment projects overlap in Central Asia. Moscow’s reaction to these two powers’ further involvement in Central Asia—its traditional region of dominance—will likely not be favorable. Moscow, though, has been in talks with Beijing to include it in the EEU through a Eurasian Partnership Agreement, but how the dynamics of such a partnership would actually play out is yet to be ascertained. For its part, experts in China have expressed that there is room for the United States to cooperate in China’s New Silk Road project. The United States itself is keen to find projects on which to cooperate with Beijing, as part of its own U.S. New Silk Road Initiative. At the same time, however, China feels that the United States, and the west in general, are trying to encircle and exclude a rising China, pointing to the Trans-Pacific Partnership agreement (TPP), the row over the South China Sea, western governments questioning Chinese investments in infrastructure projects, and the U.S.’s planned THAAD anti-missile defense system in South Korea. Therefore, as global leaders gather and discuss how to achieve sustainable growth as part of an “interconnected and inclusive world economy”, the realities on the ground point to several possible areas of contention.