Posts Tagged ‘World Trade Organization’

The Secret to Winning The Trade War

May 24, 2018

Authored by Valentin Schmid via The Epoch Times,

Liberalize domestic trade to compete in international trade…

 

In early 2018, the gloves finally came off: The United States started to punish China for its unfair trade practices and threatened allies, like Europe and Canada, for their uneven trade policies. Since then, trade has been dominating the headlines, with threats and counterthreats from the opposing sides.

But the bluster is distracting the world from the fact that we’re in an outdated paradigm, and a major solution could be fairly simple.

For the current trade paradigm, when viewed from inside the complex, rigid, and bureaucratic international trade system that is the World Trade Organization (WTO) and the different domestic institutions tasked with managing trade, the Trump administration’s move to escalate the trade war is entirely understandable and justified.

According to the – severely flawed – rules of the game, China is exploiting the United States’ and Europe’s relatively free-trade policies to officially pursue its policy of complete domination of all industries. Europe and the rest of Asia are trying to gain an edge over the United States, although they are more interested in fair trade in principle than China.

For the United States, the tolerance of such trade practices resulted in persistent trade deficits with the rest of the world worth hundreds of billions of dollars, the loss of millions of manufacturing jobs, and trillions in international debt obligations. On the flip side, it also increased profit margins for multinational American corporations who produce abroad to sell in the United States, and it lowered prices of gadgets (some productive, many useless) for consumers.

So the Trump administration’s plan is to level the playing field by more or less getting even with tariffs on inbound goods, which are, on average, 10 percent in China, 4.8 percent in the European Union, and 3.5 percent in the United States. Those tariffs may be a simplified proxy of the complex trade barriers every country manages, but they do provide a good estimate of how much a country is really interested in free trade.

Whether the increase of tariffs will ultimately work remains to be seen. China has more to lose but can also suppress discontent much more easily than the United States, where some states and industries will mobilize politically to defend the status quo once they suffer from retaliatory measures.

Liberalize Domestic Trade

A cursory glance at the WTO proceedings for applying tariffs and counter-tariffs as well as the many unintended consequences of managed trade, even if they are pro-American, show that this problem needs to be solved at a higher level, outside the paradigm of government-managed trade.

The solution is to radically liberalize trade, but not only internationally—the liberalization of domestic trade is more important.

Domestic trade? Mainstream economics and the mainstream media have indoctrinated us to believe that only nations trade. However, as with all aggregate economic statistics, this is nonsense. It is private companies and private individuals who trade, and it doesn’t really matter whether this is domestic or international.

If I order a couple of bars of Cailler Frigor Swiss chocolate on Amazon, I do the trading with the company that ships them to me from Europe through Amazon. I send them money, and they send me the product.

But the same is true if I buy a couple of domestically produced bars of Hershey’s—much cheaper but certainly not as good—from Amazon here in the United States.

Goods or services are exchanged for money, whether domestically or internationally. Every tax, tariff, or regulation that stands in the way of these transactions is hindering trade.

For domestic trade in the United States, the most important barriers to trade between individuals and companies are taxation on buying and selling goods and services (sales tax) and, more importantly, taxation on selling labor services (income tax).

Capital gains taxes and taxes on dividends stand in the way of the free flow of capital. The corrupt fractional reserve fiat money system under the management of the Federal Reserve further prevents capital from finding the right places to invest, leading to overcapacity in sectors like real estate and a complete lack of infrastructure investment, to cite just one problem.

Add to this other regulations that limit or prohibit commercial transactions, especially in the labor market, and you get the picture that domestic trade is severely crippled and operating far below its potential.

It is ironic that most of the people who are ostensibly pushing for the liberalization of international trade—in reality, they merely want regulations to favor them—are most against the liberalization of trade domestically.

If the potential of domestic trade were fully unleashed, the United States would not have to worry about 10 percent average tariff rates in China or exports to China at all, because domestically produced goods could easily compete with products coming from a semi-state planned, developing economy. Without the tax and regulatory costs, even solar panels produced in the United States would be cheaper and better than the state-subsidized products from China.

State planning is less efficient and effective than the operation of free markets; therefore, China cannot win the game in the long run, just as the Soviet Union could not win it, nor Japan, whose markets were very heavily managed by the state during its boom years. Of course, this does not mean China could not score some victories here and there by dumping some products on the U.S. market virtually for free and undermining an industry. Nothing is perfect. But the costs of China doing so would be even higher than they are today and would deplete the country’s resources in the long term.

As a result of liberalized domestic trade, people and companies in the United States would either produce domestically, because the added cost of taxation and regulation would be much lower, if not removed entirely, or trade with countries who are interested in real free trade. The ideal scenario would be that almost every product that now comes from China would be produced for the same price or less domestically, so no international trade tariffs would be necessary.

Interestingly, the Trump administration is also pushing in this direction, and its tax cuts and deregulation are going in the right direction considering the starting point of illiberal domestic trade. However, if the United States wants to compete with hostile foreign players like China, taxes and regulation need to all but disappear.

Stuck in the Middle

At the moment, the United States occupies an awkward middle ground. Its international trade policies are relatively free compared to its competitors, and so are its national trade policies and regulations—and this is why the United States is still the most competitive large economy, according to the World Economic Forum (WEF) Global Competitiveness Index.

However, as job losses and the increase in debt have shown, U.S. domestic trade is not free enough to compete with hostile actors like China in the short term. This is the main risk of the free domestic trade strategy.

When unnecessary regulations, taxes, and tariffs are scrapped, there is bound to be some volatility as the economy adjusts to the freer environment. A hostile actor like China could use this adjustment period to move in and buy up companies and intellectual property.

Maybe this is why the Trump administration’s strategy of domestic liberalization and international interventionism could be just right for the time being, although both domestic and international barriers to commerce have to be removed eventually.

Many countries in the top 10 of the WEF competitive index who also rank highly in the enabling trade index, most notably Singapore (No. 1) and Hong Kong (No. 3), had their adjustment periods a few decades ago and are thriving with free domestic and international trade. They are international trading hubs and have relatively benign tax and regulatory regimes.

Both countries also have relatively balanced trade, with Singapore averaging a small surplus since the 1950s and Hong Kong a small deficit.

At the end of the economic cycle and in the long run, trade should always be balanced. By liberalizing domestic trade and unleashing the full productive capacity of the economy, the United States could achieve this goal and avoid trade wars.

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Trump administration weighs slapping tariffs on auto imports

May 24, 2018

The US Commerce Department said Wednesday it launched an inquiry that could allow the Trump administration to impose tariffs on auto imports over national security concerns.

Commerce Secretary Wilbur Ross announced he initiated a so-called Section 232 investigation on auto trade — which would provide the legal basis to impose tariffs, if his department finds imports threaten US national security — after speaking with Donald Trump on the matter.

“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Ross said.

Image result for wilbur ross, photos
U.S. Commerce Secretary Wilbur Ross

“The Department of Commerce will conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.”

In a separate statement released by the White House, Trump said he had “instructed” Ross to “consider” kicking off the probe.

“Core industries such as automobiles and automotive parts are critical to our strength as a nation,” Trump’s statement said.

The Trump administration had used the same justification to slap steep tariffs on steel and aluminum, raising the specter of a trade war.

A similar move in the auto industry would open yet another front in the Republican president’s confrontational rows over trade that have drawn global outcry from allies and partners.

The latest announcement comes as negotiations with Canada and Mexico over revamping the continent-wide North American Free Trade Agreement (NAFTA) have stalled over auto demands.

Earlier Thursday, Trump had blamed the US neighbors to the north and south for being “difficult” in talks to renegotiate the pact.

© AFP / by Maggy DONALDSON | Passenger cars make up around 30 percent of Japan’s total exports to the United States and Tokyo has already threatened Washington with retaliation at the WTO for the steel tariffs

– ‘Great American autoworkers’ –

The Wall Street Journal reported earlier Wednesday that Trump was asking for vehicle import tariffs as high as 25 percent.

Trump has frequently lambasted China’s high import duties on foreign cars.

During recent negotiations, President Xi Jinping offered to cut the rate to 15 percent from 25 percent.

The Journal, citing sources in the auto industry, said US moves to retaliate likely would face significant opposition from trading partners and auto dealers that sell imports.

Japan was quick to lash out, with its trade minister Hiroshige Seko saying on Thursday that such a move would “plunge the world market into confusion” and be “extremely regrettable.”

Passenger cars make up around 30 percent of Japan’s total exports to the United States and Tokyo has already threatened Washington with retaliation at the World Trade Organization for the steel tariffs.

In its statement announcing the inquiry, the Commerce Department cited figures showing that US employment in automobile manufacturing had dropped by 22 percent from 1990 to 2017.

Trump appeared to tease Wednesday’s announcement with earlier tweets, saying: “There will be big news coming soon for our great American autoworkers.”

“After many decades of losing your jobs to other countries, you have waited long enough!”

In another missive referring to trade talks with China, he said that, while the discussions were proceeding nicely, “in the end we will probably have to use a different structure.”

Trump — whose protectionist platform helped launch him to the White House — has repeatedly floated the notion of steep tariffs that would shield the US auto industry.

He has specifically targeted Germany, and argued that American cars are slapped with higher tariffs than those imposed on European autos.

US cars sold in the EU are hit with 10 percent duties, while the US imposes just 2.5 percent on cars from the EU.

But Washington imposes 25 percent tariffs on European pick-ups and trucks — which the EU taxes at a much lower 14 percent on average.

by Maggy DONALDSON
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AFP

Merkel to Seek China as Free-Trade Ally on Beijing Trip

May 19, 2018

German Chancellor Angela Merkel said she’ll renew efforts to enlist China as an ally on free trade when she visits leaders including President Xi Jinping in Beijing next week.

Merkel and Russi’a President Putin last week.  AFP/Getty Images

It’ll be Merkel’s first trip to the world’s second-biggest economy since she began her fourth term in March. While Europe and China have points of friction from investment reciprocity to human rights, they’re finding common cause in rebuffing U.S. President Donald Trump’s tariff threats against both.

“China and Germany are committed to the rules of the World Trade Organization, yet we will also talk about reciprocal access in trade and intellectual property issues,” Merkel said in her weekly podcast published Saturday. “And we want to strengthen multilateralism.”

Merkel plans to meet Xi and other Chinese leaders on May 24, followed by a stop in Shenzhen to tour sites including a Siemens AG facility. She may strike a more reserved tone than French President Emmanuel Macron, who visited China in January and said European nations must stand up toChina’s global reach.

Relations with China have always been a balancing act for Merkel, even more so since China overtook the U.S. as Germany’s biggest trading partner in 2016. At the same time, the U.S. and Germany need each other to rein in China’s growing political and economic influence.

https://www.bloomberg.com/news/articles/2018-05-19/merkel-says-she-ll-seek-china-as-free-trade-ally-on-beijing-trip

Trump Lets ZTE Off the Hook

May 15, 2018

An arbitrary intervention hurts U.S. sanctions policy.

Trump Lets ZTE Off the Hook
PHOTO: CARLO ALLEGRI/REUTERS

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Donald Trump vows to challenge China’s trade abuses, but then how to explain his extraordinary intervention Sunday to rescue the Chinese telecom firm ZTE? The answer lies in the arbitrary and transactional nature of Mr. Trump’s trade policy, which has economic and political costs.

Last month the Trump Administration barred U.S. companies from selling to ZTE for seven years. But on Sunday Mr. Trump tweeted that “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!”

The decision stunned even Mr. Trump’s inner circle—not least because it undermines his own policy. The Commerce Department found overwhelming proof that ZTE sold telecom equipment containing U.S. technology to five embargoed countries: Iran, Sudan, North Korea, Syria and Cuba.

In 2016 the Obama Administration banned ZTE from buying U.S. components, which would effectively put the company out of business. Two weeks later it gave ZTE a second chance, and the company agreed to pay a $1.2 billion fine and punish the employees responsible. ZTE didn’t carry out the punishments, lied to the U.S. and got caught again. Giving ZTE a third chance sets a terrible precedent. The company used an elaborate system of shell companies to deceive the U.S., and the deception came to light only after internal documents leaked. Far from punishing the employees responsible, ZTE paid them bonuses.

The Journal reported last month that the U.S. Justice Department is investigating Huawei, another Chinese company and the world’s largest supplier of telecom equipment, for violating Iran sanctions. In 2012 Reuters reported that a Hong Kong-based Huawei partner offered to sell Iran a Huawei-developed system for monitoring communications.

The Chinese government owns ZTE through other state-owned companies, several of them defense-related. Huawei’s ownership is unclear, but it too has ties to the Chinese military. That raises suspicion that Beijing knew about the sanctions-busting and failed to stop it.

ZTE and Huawei are also under scrutiny in the U.S. and elsewhere because of concerns that their equipment could be used to spy on or sabotage networks. In 2012 the House Intelligence Committee stated that they “cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.” The U.S. has effectively banned the companies from government contracts.

Huawei and ZTE are competing with U.S. firms to develop the next generation of mobile communications, known as 5G. Under its Made in China 2025 industrial policy, Beijing offers subsidies and other aid to make the country a leader in the telecom industry. It has also pressured the American company Qualcomm to give up its telecom patents. These interventions violate World Trade Organization rules.

Mr. Trump tends to think of global politics as a perpetual negotiation, and perhaps he figures his ZTE reprieve will cause Mr. Xi to help more on North Korea. China has agreed to restart its regulatory review of Qualcomm’s bid to acquire NXP Semiconductors , which had been put on hold amid trade friction. And the Journal reports that China may forgo the tariffs on U.S. farm goods it has threatened to impose in response to U.S. steel tariffs.

So the U.S. is giving a reprieve to ZTE in return for China lifting tariffs it imposed in response to misguided U.S. tariffs. In other words, Mr. Trump is undermining U.S. credibility on sanctions in order to dodge tariff retaliation on the U.S. Farm Belt that Mr. Trump invited with his protectionism. Meanwhile, there’s no sign so far that Mr. Xi is bending on IP theft or other predatory Chinese behavior.

Maybe Trump and Xi Both Benefit from a Trade War

May 13, 2018

On Wall Street, the prevailing view remains that Trump’s hard line on China is just a negotiating tactic. Getting tough with China is good politics, In China, Xi Jinping couldn’t be hurt by looking tough…

China’s top economic adviser Liu He lands in Washington on Tuesday for another round of trade negotiations with counterparts in the Trump administration. His mission: to find an eleventh-hour compromise that will dissuade Trump from imposing sanctions on Chinese imports, avert retaliation in kind from Beijing, and thereby save the world’s two largest economies from stumbling into a senseless and mutually destructive trade war. (And you thought your job was tough!)

Image may contain: sky, outdoor and water

By Clay Chandler
Fortune

But as Washington awaits Liu’s arrival, it’s worth wondering whether compromise is really the point of the exercise. On Wall Street, the prevailing view remains that Trump’s hard line on China is just a negotiating tactic. To hear optimists tell it, the sweeping list of demands presented by the U.S. trade delegation that visited Beijing last week was vintage Trump—a deliberately outrageous opening position crafted in hopes of eventually closing a better deal.

But what if neither side really wants a deal? In recent days, a small but growing chorus of cynics has suggested that, while a trade war might be economically ruinous for producers and consumers in both nations, leaders from the two countries might find protracted conflict politically advantageous.

Proponents of this view mostly have heaped blame on Trump. In a scathing essay in the Financial Times a few days ago, columnist Martin Wolf blasted the U.S. “draft framework” for trade talks as an absurd ultimatum, to which China could not possibly accede. “The idea that the US will be judge, jury and executioner, while China will be deprived of the rights to retaliate or seek recourse to the WTO is crazy,” Wolf declared. “No great sovereign power could accept such a humiliation. For China, it would be a modern version of the ‘unequal treaties’ of the 19th century.” While China might suffer more than the U.S. in an all-out trade war, Wolf argued, for China’s leaders, the economic costs of a trade war would be “dwarfed” by the political consequences of such abject surrender.

Financial Times editorial took that argument even further: “If one sat down and made a determined effort, it would be hard to come up with a more economically wrong-headed, diplomatically toxic and legally destructive negotiating position than that presented to China last week by a visiting US trade delegation. Indeed, it is such an extreme set of demands that it is hard to avoid the conclusion that President Donald Trump’s administration, itching for a trade war, has produced an impossible agenda with the aim of goading Beijing into open hostilities….If the Trump administration simply wants an excuse that might play well back home to slap tariffs on Chinese goods, it has created one.”

But China has been equally unyielding. As Hoover Institution scholars Niall Ferguson and Xiang Xu point out—quite correctly—Chinese industrial policies that seemed relatively harmless when China joined the World Trade Organization back in 2001 have become enormously disruptive now that China has become the world’s second largest economy. “Beijing’s negotiators ought to abandon the pretense that the bilateral U.S.-China trade deficit has nothing to do with their country’s policies,” Ferguson and Xu contend. In 2001, China was “merely a big emerging market. Today it is approaching economic parity—and open strategic rivalry—with the U.S. The marriage must be adjusted to take this into account.”

Xi Jinping, despite frequent public references to “openness” and “shared prosperity,” hasn’t shown the slightest inclination to relinquish the state’s grip on China’s economy. To the contrary, he has stepped up support for state-owned enterprises, tightened restrictions on foreign firms operating in China, and doled out massive government subsidies for key sectors such as semi-conductors, robotics and artificial intelligence.

Ferguson and Xu calculate that a trade war would curb China’s GDP growth by a modest 0.3% a year, while the U.S. would be even less vulnerable. I’m reminded of the old the ad campaign for Tareyton cigarettes (back in the days when tobacco companies could advertise openly) that celebrated stubbornly loyal smokers by depicting them with big black eyes happily puffing away. The ad’s motto: “I’d rather fight than switch!” Perhaps leaders in Beijing and Washington have come to exactly that conclusion.

http://fortune.com/2018/05/12/maybe-trump-and-xi-both-benefit-from-a-trade-war/

Trump and the ‘Chimerica’ Crisis — “Making Chimerica Great Again”

May 7, 2018

The countries’ divergence began in 2015, as Beijing took defensive steps against financial risk.

Trump and the ‘Chimerica’ Crisis
PHOTO: CHAD CROWE

When the concept of “Chimerica” first appeared in these pages 11 years ago, it was intended to encapsulate a new economic world order—one based on Chinese export-led growth and American overconsumption. That put the U.S., the sole global superpower, in an unlikely financial relationship with its most likely future rival. Now, after the non-meeting of minds between American and Chinese trade negotiators last week in Beijing, is that marriage finally on the rocks?

The foundation of Chimerica came in the years after China joined the World Trade Organization in 2001, integrating its massive labor force and savings surplus into the world economy. That pushed up global returns on capital by reducing labor costs while depressing the cost of capital.

For China, the payoffs have been huge. When it joined the WTO, its gross domestic product was only 13% of U.S. GDP on a current-dollar basis. By 2016 it was 60%, and by 2023 the International Monetary Fund projects it will hit 88%. For the U.S., Chimerica meant cheaper consumer goods and lower interest rates—a significant cause of the housing bubble in the mid 2000s.

The global financial crisis of 2008-09 looked like the beginning of the end for Chimerica. But 10 years later, it still exists. Chimerica makes up around 40% of world GDP. China accounts for half of the total U.S. trade deficit. Despite significant capital outflows in 2015, China has more than $3 trillion in foreign-exchange reserves, the bulk held in U.S. dollars. Far from being a chimera, Chimerica has become a seemingly stable symbiosis.

Yet today’s Chimerica is significantly different from its 2007 antecedent. For one thing, China has changed. In many ways it increasingly resembles the U.S., with rising household consumption, higher wages, and a complex financial system that includes shadow banks, off-balance-sheet entities and a very large aggregate debt burden.

The bigger change, however, is in the U.S. Since the election of Donald Trump, America’s leaders have taken an anti-Chinese turn. The new National Security Strategy, published in December, explicitly identified China as a “strategic competitor.” On trade, the new White House has taken a combative approach, announcing a succession of tariffs on Chinese goods. Many commentators thus see President Trump as the source of the Chimerica crisis.

In fact, the direction of causation goes the other way. China and the U.S. began to diverge in 2015, when Beijing took several defensive steps to reduce the financial risk growing within its system. They included foreign-exchange policies designed to stabilize the yuan, as well as capital controls to prevent a massive decline in foreign-exchange reserves.

These measures had far-reaching global effects. The yuan’s status as a managed currency made it less attractive for international investors, contributing to its depreciation against the U.S. dollar from 2014 to 2016. This, in turn, helped widen the U.S.-China trade deficit. At the same time, despite repeated predictions by Western experts of a coming “China crisis,” the Chinese economy continued to grow significantly faster than that of the U.S.

That these trends played a role in the 2016 presidential election seems clear. Compelling evidence shows Mr. Trump’s consistent “China bashing” in his tweets and speeches won him votes in the areas most affected by outsourcing to China. A county-level analysis published in December 2016 found that a 1-point increase in import competition from China was associated with a 2.9% increase in support for Mr. Trump relative to earlier Republicans.

The backlash against China was a more or less inevitable consequence of the evolution of Chimerica. It would have happened—though perhaps in a more subtle form—even without Donald Trump. Had Mr. Trump not won the GOP nomination, we believe another Republican president likely would be acting in a similar way today—witness Sen. Marco Rubio’s increasingly hard-line stance toward China. Note, too, that this is one of the few issues on which Mr. Trump enjoys Democratic support.

Many Western commentators regard Mr. Trump’s tariffs as dangerously misguided, and investors are worried about a full-blown trade war. We beg to differ. After simulating the effects of a trade war, we have concluded that it is the right way to force China to change its ways.

Depending on how a trade war evolved, it could cut China’s total exports from between 1.2% in a month, in the mildest scenario, to more than 4% in a year. We estimate that a trade war could reduce China’s GDP growth by up to 0.3% a year. The U.S. is much less vulnerable. American imports from China are equivalent to around 4% of China’s GDP. American exports to China are less than 1% of U.S. GDP.

In the words of one Chinese official speaking on the eve of last week’s negotiations: “This will be a testing year. If it goes in the right direction, it will be fine; if it goes in the wrong direction, it will be earthshaking.” But what is the right direction? The standard response when a country is hit with new tariffs is to retaliate with its own tariffs. The standard approach to trade negotiations is to haggle over each product category. In the case of Chimerica, however, such approaches risk a downward spiral, with dangerous implications for global economic stability.

For that reason, Beijing’s negotiators ought to abandon the pretense that the bilateral U.S.-China trade deficit has nothing to do with their country’s policies. A great deal has changed since Chimerica became the fulcrum of the world economy after 2001. Back then China was merely a big emerging market. Today it is approaching economic parity—and open strategic rivalry—with the U.S. The marriage must be adjusted to take this into account.

What’s required, in short, is a new balance. This can be achieved only if China gives ground and commits itself to reducing its bilateral trade deficit with the U.S. If that seems unpalatable to Beijing’s negotiators, they should consider the alternative. A Chimerican divorce is unlikely to be amicable—and would hurt not only China and the U.S. but the entire world economy.

Messrs. Ferguson and Xu, both fellows at the Hoover Institution, are the authors of the new working paper “Making Chimerica Great Again.”

https://www.wsj.com/articles/trump-and-the-chimerica-crisis-1525635323

U.S.-China Trade Fight Takes Shape in Geneva

April 28, 2018

No automatic alt text available.

  • Trump’s top WTO official argues with Chinese attache
  • Spat comes as Lighthizer, Mnuchin prepare for talks in Beijing

Just a month after President Trump upended the global order with threats of tariffs against allies and adversaries alike, his ambassador to the World Trade Organization took aim at both China, a main focus of Washington’s ire, and the global trade body itself.

China’s “trade-distorting policies” represent a “threat to the international trading system,” Deputy U.S. Trade Representative Dennis Shea said in Geneva on Friday during his first public comments on the matter. China’s technology transfer policies harm every WTO member and industry that “relies on technology for maintaining competitiveness in world markets.”

To read about the five biggest threats to the WTO, click here

Trump has proposed tariffs on up to $150 billion in Chinese imports as punishment for what his administration sees as widespread violations of U.S. intellectual property rights. Beijing has vowed to retaliate in kind, with levies on everything from American soybeans to airplanes. Treasury Secretary Steve Mnuchin, U.S. Trade Representative Robert Lighthizer and National Economic Council Director Larry Kudlow will travel to Beijing next week for trade talks with top Chinese officials.

It’s a “very delicate” moment in relations, and the conflict has the potential to curb economic growth and weaken the WTO’s role as a global trade arbiter, according to WTO Director-General Roberto Azevedo. “Progress could be quickly undermined if governments resort to restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation,” Azevedo told reporters earlier this month.

Unilateralism, Protectionism

China’s Deputy Permanent Representative Yu Benlin said on Friday that Washington’s tariffs are unilateral and don’t comply with WTO rules.

The U.S. actions are “challenging the foundation of the rules-based multilateral trading system,” Yu said, according to a copy of his prepared remarks. “We believe the time has come for all members to join with each other to take actions against the unilateralism and protectionism manifested in the U.S. conduct.”

Shea dissented, saying the U.S. measures are legal and they aim to counter China’s “harmful trade distorting policies,” according to a copy of his remarks. “Instead of addressing its damaging and discriminatory policies, China accuses the United States of ‘unilateralism’,” Shea said. “This criticism has absolutely no validity.”

“If the WTO is seen as a shield protecting those members that choose to adopt policies that can be shown to undermine the fairness and balance of the international trading system then the WTO and the international trading system will lose all credibility and support among our citizens,” Shea said.

https://www.bloomberg.com/news/articles/2018-04-27/u-s-china-trade-fight-takes-shape-as-diplomats-spar-in-geneva

Related:

 (WTO has sided with China)

WTO Seems To Side With China Against Trump, U.S.

April 27, 2018

The United States on Friday rejected a proposal by 66 World Trade Organization members aimed at breaking a deadlock within the body’s court, a trade official in Geneva said.

© AFP/File | Trump thinks the WTO is too soft on China

The deeping crisis at the WTO’s Dispute Settlement Body (DSB) has been triggered by President Donald Trump administration’s refusal to sign off on the appointment of new judges to the court’s appellate chamber.

The 164-member WTO is confronting a range of headaches linked to Trump’s trade policies, including fierce battles over his proposed tariffs on steel and aluminium.

But trade experts have said the DSB blockage may prove to be the most severe, since it could cripple the WTO’s ability to resolve disputes, one of the organisation’s key functions.

The trade official, who was not authorised to comment publicly on Friday’s DSB meeting, said 66 members put forward a plan to fill the three court vacancies.

“The United States said it was not in a position to accept (the) proposal,” the official said.

Tensions over the issue have been compounded by the fact that the United States has not clearly expressed its intentions for the DSB or offered a reform plan.

Trump has called the WTO a “disaster,” a “catastrophe,” and said its rulings are “unfair” to the US.

Those assertions have been countered by WTO officials who note that the US has won more DSB cases than any other member.

The US ambassador to Switzerland, Edward McMullen, told journalists on Thursday that he was not in a position to explain the American position regarding the trade court, but noted that Washington’s new WTO envoy, Dennis Shea, has recently started work and will be able to provide answers soon.

“I think you are about to get clarity with the new ambassador,” McMullen said.

The DSB needs at least three judges to hear cases.

Based on timelines on which the remaining judges are due to retire, the court will stop functioning by the end of next year if no replacements are agreed.

Related:

 (WTO has sided with China)

The Next Step for Chinese Economic Policy

April 24, 2018

China now must adopt the necessary reforms to become fully compliant with the international rules that it accepted upon joining the World Trade Organization in 2001

Image may contain: sky, skyscraper and outdoor

 
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Now that it has risen to the top of the global economy, China must adopt the necessary reforms to become fully compliant with the international rules that it accepted upon joining the World Trade Organization in 2001. Its current policy will only lead to a serious trade conflict with the US.
CAMBRIDGE – I am a great admirer of China and its ability to adjust its economic policies to maintain rapid growth. But now that it has risen to the top of the global economy, it must adopt the necessary reforms to become fully compliant with the international rules that it accepted upon joining the World Trade Organization in 2001.

When I first went to China in 1982, it was a very poor country governed by a thoroughly communist regime. Agriculture was completely collectivized. Because peasants had lost the right to farm their own land, agricultural output was extremely low. Beyond agriculture, individual ownership of the means of production was outlawed. A Chinese family could own a sewing machine for its own use, but it could not own two sewing machines or hire a neighbor to help produce garments.2

Under the leadership of Deng Xiaoping, this began to change. Plots of land were returned to their previous owners, who were allowed to keep any output exceeding the government’s mandatory quota. As a result, agricultural output soared, and farmers produced a range of additional crops, like flowers and vegetables, to sell directly to the public. Restrictions on ownership of productive assets and on hiring workers were gradually relaxed, such that the private sector now accounts for the majority of economic activity in China.

The result was an explosion of economic growth and a rapid increase in living standards. Since 1982, China’s real (inflation-adjusted) GDP has grown at an average annual rate of more than 7%. Per capita real GDP is now 18 times higher, with some 800 million people having been lifted out of poverty since the start of Deng’s reforms. Although overall per capita output in China is still only a quarter of the US level, the standard of living in China’s major cities is impressively high. To see the gleaming skyscrapers and array of shops serving affluent young people is to appreciate the change that has occurred in just a few decades.

Deng once declared, “To get rich is glorious.” China’s people have responded. Private entities flourish, and a very active stock market allows widespread share ownership. China apparently has more self-made billionaires than the United States.

The combination of private incentives and effective education is a key reason for China’s rapid growth. China has an ancient tradition of promoting the brightest students based on extensive examinations. The officials who worked for the emperors were selected based on written exams of Confucian thought. Now literacy is universal and national examinations are used to decide who goes to the top universities. More than a million Chinese students have studied in the US, and several of the top government economic officials have done graduate work there.

In many ways, the Chinese economy now works like a large American multinational corporation. Broad strategy is set by management at the top: growth targets, the structural shift from heavy industry to consumption, the Belt and Road Initiative (which will guide exports and foreign aid), and so on. Individual managers are tried out in regional cities and promoted based on their success in achieving the goals set by national leaders.

The goals set by President Xi Jinping and the current government are to increase the sophistication of the economy and achieve a middle-class standard of living for the population. To succeed, China is investing large sums in research and technical education.

But in their eagerness to catch up to the West, China has also stolen technology from Western companies. Under President Barack Obama, the US accused China of engaging in cyber espionage against American firms and stealing their intellectual property. Presidents Xi and Obama subsequently signed a communiqué in 2013 renouncing such cyber theft.

  • GENEVA, SWITZERLAND -5 JUNE 2016- The headquarters of the World Trade Organization (WTO) is located in Centre William Rappard along Lake Geneva.

But China continues to take technology from US companies. It does so by requiring foreign companies that want to do business in China to form joint ventures with Chinese firms, allowing the Chinese partners to obtain US firms’ technology. And while the WTO prohibits member countries from conditioning market access on such mandatory technology transfers, the Chinese have responded that nothing is mandatory, because companies do not have to do business in China.

That is clearly disingenuous, and the announcement of large US tariffs on Chinese exports is intended to encourage China to comply with the WTO rule on technology transfer. The Chinese may be getting the message. In an important recent speech at this year’s Boao Forum, Xi said that China will no longer require such joint ventures in the auto industry – an implicit admission that the requirement is a violation of the WTO rule.

It is time for China to extend this new policy and eliminate the joint-venture requirement completely. Although the US does not have such a requirement, it would be helpful for both countries to state openly that in the future no foreign company will be required to enter a joint venture or to transfer technology in other ways as a condition of doing business.

China can continue its rapid growth and technological development through its own efforts. Its current policy will only lead to a serious trade conflict.

https://www.project-syndicate.org/commentary/china-wto-mandatory-technology-transfer-by-martin-feldstein-2018-04

China targets US, EU, Singapore with rubber trade case — “We hope the US will not underestimate China’s resolve.” — Sorghum imports from the US also called for dumping by China

April 19, 2018

AFP

© AFP/File | China announces it will impose temporary anti-dumping measures on synthetic rubber imported from the United States, the European Union and Singapore
BEIJING (AFP) – China announced on Thursday it would impose temporary anti-dumping measures on synthetic rubber imported from the United States, the European Union and Singapore.The case could stoke the simmering tit-for-tat trade tiff between Beijing and Washington, with each side having made threats of more duties on billions of dollars worth of goods.

China’s commerce ministry repeated that the two sides were not negotiating on the issue — appearing to contradict US President Donald Trump’s claim last week that the two sides were having “great discussions” on trade.

“The two sides have not conducted any bilateral negotiations on the US’s section 301 investigation or the US’s proposed list of Chinese products to tax,” ministry spokesman Gao Feng told a regular press briefing.

The US section 301 investigation focuses on what Washington describes as Beijing’s intellectual property breaches, including a failure to respect foreign patent holders.

When asked if China had underestimated the Trump administration’s resolve on trade, Gao shot back: “We hope the US will not underestimate China’s resolve.”

He warned that Beijing would fight back against any “erroneous scheme” by the US that would attempt to “contain China’s development and force China to yield”.

“On the surface the US’s actions are targeting China, but actually it is harming itself,” Gao said.

The anti-dumping measures on rubber come after an initial investigation by China’s commerce ministry found evidence the countries were dumping the halo-isobutene-isoprene rubber.

Importers were directed to place deposits with China’s customs department ranging in amount from 26 percent to 66.5 percent of the goods’ cost — to be applied against the imposed tariffs if the ministry finds dumping in its final ruling.

The dumping did “substantial damage” to China’s domestic industry, the commerce ministry said in a statement.

The US and Singapore are China’s main foreign sources of the synthetic rubber, with imports from the two countries respectively totalling $153 million and $115 million last year.

It follows a similar case from Tuesday when China decided to slap provisional anti-dumping duties on imports of US sorghum.

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BBC News

China imposes anti-dumping deposits on US sorghum

A sorghum field Elm Flat, TexasImage copyrightGETTY IMAGES
Image captionThe top three sorghum producing states in the US are Kansas, Texas and Colorado

China has announced a hefty anti-dumping move against US sorghum imports, as a multi-billion dollar tit-for-tat trade spat between the two nations continues.

China said US importers would have to pay a temporary 178.6% deposit on the value of their imports from Wednesday.

China initiated its investigation into US sorghum imports in February.

US growers were “deeply disappointed” with the findings and are considering legal action in response.

Sorghum is a grain used primarily to feed livestock, but it is also used to create ethanol, or drinking alcohol.

The US is the world’s leading producer of sorghum, and is the largest supplier of sorghum to China. China uses its sorghum imports to feed its farm animals, and in its spirits industry.

Analysts said the temporary anti-dumping deposit imposed by China, which comes ahead of a possible anti-dumping tariff on the product, was quite high and that some US shipments in the future could be cancelled as a result.

China’s announcement follows months of trade tariffs – and threats of tariffs – imposed by the US and China on each other.

The US claims that China has unfair intellectual property practices, such as those that have allegedly pressurised US companies into sharing technology with Chinese firms when doing business in the country.

US President Donald Trump is primarily using big trade threats aimed at China as a way to make it stop what he calls “illicit trade practices”.

In a move that was expected to appease the US, China said this week it would allow full foreign ownership of car firms by 2022, changing the rules that require global carmakers to work through state-owned partners.

Beijing meanwhile continues to claim that the US is dumping products at cheaper-than-market prices into China, which is hurting Chinese farmers and manufacturers. It also says the US it is unfairly punishing it with tariffs, and has continued to say it is not afraid of a trade war.

Separately, as tensions continue to rage between the two trading giants, the US said this week it was imposing a seven-year ban on US firms selling parts to China’s big phone maker, ZTE.

The United States Trade Representative has said it will review China’s move on US sorghum and will consider taking it to the World Trade Organization.

Behind the sorghum development

Hogs are raised on the farm of Gordon and Jeanine Lockie April 28, 2009 in Elma, IowaImage copyrightGETTY IMAGES
Image captionChinese farmers may suffer in the long run from China’s latest move as they rely on imported sorghum as feedstock for their animals

China’s investigation into its sorghum industry, launched in February, has found that US firms have been selling sorghum into China at below market prices, which is a practice known as dumping.

China has said that the market share of American sorghum jumped from 8% in 2013 to 61% in 2016 and that the price of imported sorghum from the US had edged down from $289.61 per tonne in 2013 to $214.78 per tonne in 2016.

“Due to the flood of cheap imports, Chinese industry has been damaged in terms of production and financial condition,” China’s Ministry of Commerce told reporters in February.

But industry groups in the US said American sorghum was not being dumped in China, and that their sorghum producers and exporters had not caused any injury to China’s sorghum industry.

“[This] decision in China reflects a broader trade fight in which US sorghum farmers are the victim, not the cause,” the US industry group National Sorghum Producers said.

“And US sorghum farmers should not be paying the price for this larger fight.”

Few winners in a trade war

Some analysts have said China’s latest move was in response to controversial tariffs on imported washing machines and solar panels.

Others have said the timing of the investigation was a coincidence and that the new deposit tax was not officially related to any specific measure, but simply about sorghum being dumped into the Chinese market.

“China does seem to have sufficient cause to launch an investigation given [its figures on sorghum imports from the US],” Deborah Elms from the Asian Trade Centre told the BBC.

But she also warned that both sides could be hurt by China’s latest move.

“US farmers will be hurt in the short term, as my understanding is that these crops are largely planted for export to China,” Ms Elms said.

“In the longer run, Chinese farmers may suffer as they rely on these imported products as feedstock for their animals. They can shift to other sources, but this will take time and presumably cost more,” she continued.

“In a trade war, there are often few winners. The winners, in this case, are likely to be producers of alternative feedstock in other countries like Canada or Vietnam.”

http://www.bbc.com/news/business-43805549