Trade Policy Priority One: Averting a U.S.-China "Trade War"

March 14, 2012

Since China's accession to the World Trade Organization (WTO) in 2001, U.S.-China bilateral trade relations have improved markedly.  However, over the course of the few years since the global recession, policymakers in each country have begun a tit-for-tat pattern of protectionist measures that, if allowed to continue unchecked, could spark a downward-spiraling trade war, says Daniel J. Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute.

  • Since China's entrance to the WTO, the United States has filed 12 formal complaints against China, and China has filed six formal cases against the United States.
  • Meanwhile, the United States has in place 113 trade remedy measures restricting access of Chinese goods to the U.S. market, and China has in place 20 such measures against the United States.
  • The prior action attempts to force the foreign country to further open their markets, while the latter seeks permission to protect one's own markets.

These actions have significantly ramped up since the recession, as the American public is encouraged to see Chinese trade policies as the scapegoat for the lion share of their problems.  This façade is supported by sensational members of the media and policymakers who advocate protectionist remedies.  The spark for further action was set off in 2009.

  • In 2009, the differential between China's double-digit growth and America's stagnation caused many to believe America had been too permissive of China's protectionist measures and simultaneously too resistant to indulge in them itself.
  • In that same year, American businesses operating in China that had been stretched by the recession filed numerous complaints against China, providing cover for policy action against China.
  • This public/corporate sentiment culminated in the Obama administration's authorization of the imposition of duties on imports of certain Chinese tires via the Trade Act of 1974.

This final action, which seems insignificant in its breadth, was viewed as an intentionally provocative move by the president.  A day after the duties began the Chinese government filed a complaint with the WTO.  It followed this action with antidumping and countervailing duty investigations into certain U.S. chicken and automobile exports to China.  These actions can easily get out of control in a no-win race to the bottom of China-U.S. relations.

Source: Daniel J. Ikenson, "Trade Policy Priority One: Averting a U.S.-China "Trade War," Cato Institute, March 5, 2012.

For text:

http://www.cato.org/publications/free-trade-bulletin/trade-policy-priority-one-averting-uschina-trade-war

 

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