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Digging in for a Long Fight

September 25, 2018 in Economics

By Simon Lester

Simon Lester

US President Donald Trump frequently proclaims his desire to
“drain the swamp.” In US-China trade relations, however, he is
steadily leading the United States into a quagmire from which it
may be difficult to escape. Skepticism and hostility towards China
among US politicians and commentators existed long before Trump,
but the intensification of the rhetoric, and aggressive actions
taken in recent months, will be difficult to undo or pull back
from, at least for this administration.

Like all countries, China is guilty of a number of trade sins.
There are sectors in which it is highly protectionist, and it has
only recently begun to follow rich country norms on intellectual
property. China is not the only offender, of course, but given its
economic size and its authoritarian politics, it is not surprising
that China is the target of the most intense criticism.

What is surprising is the strategy taken by the Trump
administration to address these issues. While the Barack Obama
administration tried to work within multilateral rules, the Trump
administration has decided to go it alone. It is imposing tariffs
on China that clearly flout World Trade Organization (WTO)
obligations, and which do not appear to be achieving the objective
of prompting reform in China.

Instead, we are in the midst of a back-and-forth game of tariff
escalation. The US imposes tariffs on US$34 billion of imports;
China matches it. The US adds tariffs on another US$16 billion of
imports; China matches that. The US is now threatening tariffs on
$200 billion of imports; China doesn’t import enough from the US to
match that, but it will impose tariffs on all the imports it can.
If this keeps going, both sides will be imposing tariffs on all
imports from each other, and perhaps taking other retaliatory
actions as well.

The administration’s defense of its policies is that other
methods of dealing with China have been tried and did not work. The
administration accuses China of cheating, and says the WTO cannot
handle China’s unique brand of state intervention. There have even
been suggestions that China’s entry into the WTO on the terms
agreed in 1999 was a mistake.

The reality is that WTO litigation against China’s trade
practices has worked quite well, where it has been used. China does
as well as other countries at compliance when challenged in a WTO
complaint. The problem is that WTO dispute settlement needs to be
used more. But the Trump administration is not listening to this
criticism (it has filed only one new WTO complaint). It is relying
mostly on tariffs instead.

And despite the concerns of economists and affected companies,
the administration shows no …read more

Source: OP-EDS

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