China raises the ante on trade with new tariffs

IT HAS BEEN 10 years since China joined the World Trade Organization. U.S. policymakers of both parties favored Chinese membership in the organization, which promotes global trade and resolves disputes. Not only would this facilitate trade, they argued, it would also help bring China into the framework of international law and thus encourage the rise of a People’s Republic that acted with the greatest possible consideration for the needs and interests of the United States and other nations.

How’s that working out? In short-run economic terms, the bet delivered access to cheaper, high-quality goods for U.S. consumers and more income for the once-impoverished people of China. This is the result one would have expected from freer trade, which remains the key to prosperity for all emerging markets and the global economy in general.

For the longer term, though, much depends on gradually resolving the huge imbalance between the two countries, which has built up as a result of China’s persistent trade surpluses, without triggering a trade war.

The Chinese have a point when they argue that the United States wouldn’t be so dependent on Chinese credit if it did a better job of controlling its own federal budget deficits. Nevertheless, China must adjust its export-dependent growth model as well. And in that regard, WTO membership has not delivered the hoped-for evolution in China’s mind-set — at least not yet.

As the U.S. ambassador to the WTO, Michael Punke, observed in a Nov. 30 speech, there is a growing “perception” in this country and around the world that China uses “intimidation” to get its way in trade, whether through aggressive subsidization of state-owned industries, technology transfer requirements for foreign firms or slack enforcement of foreigners’ intellectual property rights. “China seems to be embracing state capitalism more strongly each year, rather than continuing to move toward the economic reform goals that originally drove its pursuit of WTO membership,” Mr. Punke said. “This is a troubling development, and the United States urges the Chinese government to reconsider the path it is on.”

As if to answer Mr. Punke — or to prove him right — China slapped tariffs on U.S.-made large-engine cars on Dec. 15. The move appeared timed to counter recent U.S. complaints about Chinese subsidies for its solar-panel industry and alleged Chinese limits on U.S. poultry exports.

The economic impact is probably modest, since the tariff applies to only a tiny share of U.S. exports. But it’s a worryingly aggressive gesture. Chinese Commerce Minister Chen Deming said his government was merely fighting subsidized exports, as the United States does itself, and that its tariffs are “in line with WTO rules and not a form of protectionism.” Mr. Chen challenged the United States “to ask the WTO experts to rule.” Maybe the Obama administration should take him up on that. Or maybe Beijing should reflect on the fact that its own economy, troubled by a deflating real estate bubble, has a lot to lose from a trade war, too.

Original Article
Source: Washington Post