Years of growing trade belligerence are really grinding everybody’s gears!
In Geneva, Switzerland, not far from an awesome-looking Freddie Mercury statue, is the headquarters of the World Trade Organization, where diplomats from around the world have gathered to review the trade policy of the world’s second largest economy: China.
This is a big deal at the WTO, because China’s a big deal. Thanks in no small part to its entry into this institution twenty years ago – facilitated in no small part by the U.S. government’s decision to normalize trade relations in 2000 – China’s economy and the wealth of many of its people have grown exponentially. Its GDP is expected to grow 6 percent this year – a rate commensurate to or even a little lower than nearly every other year in the past decade. In fact, China has grown so fast for so long it will soon pass the United States to have the world’s largest economy. It’s been going like gangbusters over there for a long time, and yet … it still calls itself (per the WTO’s own rules) a developing country, and advantages itself of all the trading benefits that the designation allows.
To its many critics, which it has earned, that’s kinda indicative of the spirit in which China has conducted itself since joining the WTO. It has enriched itself through the foreign investment and access to markets that WTO membership has facilitated, which is great, but that wasn’t the entire idea. That idea was that all sides would benefit from China’s ascension.
That was the argument American politicians made at the time when promoting the WTO ascension they helped midwife. “The more China liberalizes its economy, the more fully it will liberate the potential of its people,” said then-President Bill Clinton in a speech urging Congress to grant permanent normalize trading status to China. “Our companies will be able to sell and distribute products in China made by workers here in America without being forced to relocate manufacturing to China, sell through the Chinese government, or transfer valuable technology — for the first time. We’ll be able to export products without exporting jobs.”
That obviously hasn’t happened. Instead we got a flood of imports, a lot of job loss, marginally cheaper prices on consumer goods, and lots of questionable behavior from a country that’s a global superpower because of its economic clout.
Anyway, back to Switzerland. Part of WTO membership means every few years you gotta sit for a big review of your own trade policies, which is what everybody is doing in Geneva for a few days this week. Just sittin’ around, eating chocolate, probably wearing lederhosen and critiquing Chinese trade policy. China has been getting grilled.
Here’s the European Union:
“The degree to which China has reformed and opened today is not commensurate with its weight in the global economy, or comparable to the access which China has to the markets of other WTO Members. Moreover, the influence exerted by the state on China’s economic environment generates competitive distortions worldwide, leading to systemic problems for global trade.”
By undermining agreed trade rules China also undermines the multilateral trading system on which all WTO Members rely. These rules have underpinned Members’ growth and prosperity for decades. They protect the rights of Members regardless of their size and power. China has assured Members of its commitment to the rules-based order; but from our viewpoint there is a growing gap between China’s rhetoric and its actions.
Like others, we are also concerned about the centrality of state-owned enterprises (SOES) to China’s industrial strategies, and the opacity of their operations. These SOEs number at around 326,000 and account for over 20 of China’s 25 largest businesses. That market dominance and the way such SOEs operate, disadvantages both domestic private firms and foreign investors.
And the United States:
Those expectations (of reform and liberalization) have not been realized, and it appears that China has no inclination to change. Instead, China has used the imprimatur of WTO membership to become the WTO’s largest trader, while doubling down on its state-led, non-market approach to trade, to the detriment of workers and businesses in the United States and other countries.
The Alliance for American Manufacturing has not yet made its debut at the WTO, so we just weighed in from across the Atlantic. “It is good to see the Biden administration use this opportunity to pressure China to do better, said AAM President Scott Paul. “But, I continue to be skeptical that the WTO has the ability to do anything about China’s blatant disregard for global trading rules. Without major reform, I doubt anything will change.”
China, for its part, denies virtually all of the accusations lobbed at it and says it’s playing by the rules. Which makes sense! It has clearly benefited from international trade as we know it. But pressure is also building for real reform – if not from China itself then at the WTO.
The Trump administration spent its four years in office using America’s considerable leverage to hamstring WTO activity until reform was made to its various institutions that no longer worked as they were intended to. The Biden administration is taking a different approach, opting instead to engage in negotiation to achieve those results.
We hope they’re successful, because although we’re nearly a decade past the worst of the damage done to the millions of American workers by a deluge of unfairly traded Chinese imports that our political class helped usher in, the fallout has lingered. It can’t be allowed to happen again.
As AAM’s Paul put it: “It’s time to build back better, and when it comes to China, the next 20 years cannot be like the last 20.”
China’s WTO review continues Friday.