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U.S.-China Trade Tumult: Implications for Global Trade Rules

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Bretton Woods Committee  | Mon, Jul 30, 2018


On July 17, 2018, the Bretton Woods Committee hosted a virtual conference U.S.-China Trade Tumult: Implications for Global Trade Rules, which explored issues central to the current trade dispute between the United States and China, and the wider ramifications for the World Trade Organization and multilateral trading system. Featured speakers included Shang-Jin Wei, the N.T. Wang Professor of Chinese Business and Economy at Columbia University, and David Dollar, John L. Thornton China Center Senior Fellow at the Brookings Institution. Stephen Myrow, Managing Partner of Beacon Policy Advisors LLC, moderated the conversation.

Legitimate trade concerns should be addressed. Dollar contended that the United States does have legitimate concerns regarding market access issues, saying “Among the G-20 countries [China] is the most restrictive in terms of direct foreign investment.” Wei concurred, highlighting four key objectives the United States should have in negotiations with China: market access, IP protection, investment restrictions and Chinese industrial policy, particularly China 2025. From the Chinese perspective, Wei outlined three reforms that the United States could enact to improve trade, including improving transparency around the CFIUS process, domestic subsidies, and concerns regarding national security. All three speakers agreed that the goals of the United States in this trade dispute need to be clearly communicated. Myrow observed that “competing factions within [Trump’s] own administration” has made U.S. trade objectives with China ambiguous.

Bilateral trade deficits do not alone define a trading relationship. Wei underlined, "it is problematic to judge a country's quality or fairness of trade policy based on whether it runs a surplus or not." Wei expounded that the United States’ low savings rate results in larger deficits and adding the tax reform bill could exacerbate a "further shortage of savings” and thus widen the deficit. Dollar agreed, explaining that the trade imbalance mostly reflects savings and investment habits, not bilateral trade relationships. Even if China purchased more goods, Dollar added, it would do little to close the trade gap. Dollar asserted that the trade imbalance is "not a legitimate trade policy issue."

The U.S.-China trade dispute could threaten the multilateral trading system. WTO organizational capacity and global trade-rule norms are at stake in the altercation. Wei warned that U.S.-blocking of appellate body judges at the WTO is hindering the organization’s ability to resolves disputes and undermining global trade rules. Myrow concurred, saying, “You can let an organization die on the vine by not nurturing it.” The United States has also imposed steep tariffs based on national-security grounds – a rarely-invoked rationale yet to be ruled on by the WTO. Dollar explained that breaking the national-security norm further harms trading relationships, especially when targeted at security allies such as the European Union. Myrow identified that U.S. trade partners are seeking alternative relationships, for example, he said the European Union is “certainly considering a closer relationship with China in light of the America First policy.”

The path to resolution is uncertain, but politics will be important. Wei pointed out that agreement between sides at this stage is unreliable, citing that the United States twice declined terms that involved Chinese concessions to purchase more U.S goods. He surmised that the President will likely not be satisfied until the bi-lateral trade deficit is reduced, which is improbable under current conditions. Myrow and Dollar highlighted that the U.S. domestic politics will probably affect the outcome, considering that trade will be a salient issue for President Trump’s base in the upcoming 2018 midterm and 2020 elections. Dollar warned that if the President perceives this trade spat as a “political winner,” then the conflict could drag on for an extended period of time.

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