The media has spilled lots of ink these past several months
keeping up with developments in the U.S.-China trade relationship.
Since February, the U.S. Trade Representative has initiated three
separate cases against China in the WTO, and the U.S. Commerce
Department broke with a 22-year tradition by applying preliminary
countervailing duties (to countervail subsidies) against Chinese
exports of coated paper.
The rash of activity leads some to speculate that recent actions
signal the beginning of a trade war with China. Though such a
sensational conclusion is what headlines are made of, the
appropriate conclusion is probably exactly the opposite: recent
U.S. actions are likely to head off a trade war with China.
Trade disputes, particularly between the world’s largest and
fastest growing economies, are inevitable. Fortunately, there is a
functioning and respected venue for arbitrating those disputes in
the World Trade Organization. As far as I can tell there is nothing
particularly provocative or unjustified in the Bush
administration’s assertion of U.S. rights in its WTO complaints,
and I see a silver lining in the Commerce Department’s decision to
apply countervailing duties.
By bringing its actions through the WTO, in a manner that
appears to be consistent with U.S. obligations, the Bush
administration may be preempting the Congress from passing
legislation that would take the kind of unilateral action that
could justify retaliation, and ultimately spark a trade war.
Although Chinese officials have registered incredulity and anger
over these disputes, I would interpret most of it as posturing and
face saving. It would be naïve to expect China’s
response to the U.S. complaints to be contrition. (“Oh yes, we
realize that our policies are discriminatory and our laws
inadequate, but we just haven’t had the chance to get around to
fixing them. Sorry, how can we mend our ways?”) These cases have
been in the works for a long time and the Chinese have had to
expect that the United States would be lodging formal complaints at
some point.
With Congress foaming at the mouth to punish China for its
audacity in running a large trade surplus with the United States,
the Chinese should even welcome the administration’s WTO path. One
complaint I’ve heard registered by Chinese officials is that they
thought the Bush administration had signaled a willingness to
engage in dialogue, and that the recent actions constitute a form
of betrayal. Well, the two are not mutually exclusive. In fact,
dialogue is encouraged under WTO dispute settlement. It is the
first step (“request for consultations”) of the dispute settlement
process. There is a preference for members resolving their disputes
without need of formal WTO adjudication. Filing these cases just
puts an hourglass on the negotiating table.
Despite some suggestions that there will be retaliation, I’d put
those chances at about 0 percent. China has no legitimate recourse
to any retaliation (at least at this point) because the United
States has not acted in a manner contrary to its WTO obligations.
If China were to retaliate officially (outside of choosing to forgo
purchases of U.S. wheat or Boeing jets or U.S. government
securities, for effect), it would be in violation of its WTO
commitments. And China cannot afford that stigma at this point,
since governments across the globe are looking for excuses to at
least temporarily disregard their own WTO commitments to hammer
Chinese exports.
As an advocate of unfettered trade who recognizes that trade
disputes are inevitable, I see these recent trade actions as part
and parcel to an evolving, mutually beneficial relationship.
