US-China trade feud escalates

The trade feud between the US and China has further escalated with both parties promising a new round of restrictions following the results of an investigation by the US Trade Representative (USTR) into Beijing’s allegedly unfair trade practices.

“Years of talking about these problems with China has not worked,” USTR Robert Emmet Lighthizer said in a note on March 22, announcing new restrictions on Chinese imports and investment.

The Chinese commerce ministry replied immediately, urging “the United States to resolve China’s concerns as soon as possible, resolve bilateral differences through dialogue and consultation, and avoid damage to the broader array of Chinese-US cooperation”, according to an online statement which in turn announced new tariffs on US imports.

The USTR’s investigation into China’s trade policies and practices related to technology transfer, intellectual property and innovation concluded that Beijing “uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to force or pressure technology transfers from American companies”; “uses discriminatory licensing processes to transfer technologies from US companies to Chinese companies”;  ‘directs and facilitates investments and acquisitions which generate large-scale technology transfer”; and “conducts and supports cyber intrusions into US computer networks to gain access to valuable business information”.

President Donald Trump has announced new tariffs worth about $60bn of Chinese imports. At the same time, he directed the Treasury Secretary “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States”. The measure follows tariffs on a number of Chinese imports (white goods, solar panels, steel and aluminium) that  the White House has announced in the past months on the basis of “national security” issues.

Beijing did not hesitate to retaliate by announcing the introduction of duties in US imports worth about $3bn, including, wine, modified ethanol and pork.

It remains to be seen whether the US will be able to push through its “national security” argument also before the World Trade Organsization (WTO).

“Based on the current WTO jurisprudence, what Mr Trump described as national security is not compliant with the WTO concept of national security [which would allow exemption to WTO rules], but this is only an assessment based on the evidence that emerged in the media so far. I suspect the White House’s lawyers will bring forward further evidence for the claim,” Jie Huang, a senior lecturer in law at the University of New South Wales in Sydney, told fDi at the Asia FDI Forum organised by the Chinese University of Hong Kong.

The outcome of any disputes raised by the USTR before the WTO will not likely deter the White House from enforcing its unilateral tariffs. Mr Trump has repeatedly scorned the WTO, saying the international trade body has been “a disaster for this country”. Additionally, the White House has undermined the dispute resolution capacity of the WTO in recent months by vetoing the appointment of judges to its Appellate Body, the supreme court of global trade, whose active judges now number four out of a possible seven, and will further decrease to three in September unless new judges are appointed.

“The US imposing unilateral tariffs won’t weaken the WTO that much, but its blocking the appointment of judges is a big threat to the operation of its dispute resolution mechanism,” Ms Huang says.

China joined the WTO in 2001. The country was supposed to gain market economy status in 2016, but the US and other Western countries opposed not to lose a chance to pass anti-dumping measures on Chinese imports. In addition, despite China joining the WTO, local observers feel that the country has been marginalised in trade agreements in the past years.

“China joined the WTO in 2001, then the US started pushing the Trans-Pacific Partnerhip [TPP] as an alternative forum for trade with the region, leaving China out of it,” said Ting Han, visiting researcher at the School of Law of the Melbourne University, told fDi at the Asia FDI Forum. “The establishment of free trade zones [11 pilot free zones have been established since 2013] reacts to this marginalisation. They are testing these zones either to gear up to join the deals like the TPP one day, or perhaps to establish their own forum through alternative regional deals like the Regional Comprehensive Economic Partnership.”

The rising power of president Xi Jinping, who may rule the country for life after the recent removal of the presidential term limit from the constitution, paves the way for this to happen.

“Now there is political stability and economic growth for China to set its own standards, not to follow but to become the trendsetter,” Ms Han concludes.