China’s New Sanctions: A Bump in the Trade War
Grace Watt, Staff Writer
November 18th, 2019
On November 1st, the World Trade Organization (WTO) approved China’s request for sanctions against the U.S., awarding them $3.58 billion (USD). This was roughly half of what China had applied for, on the basis that U.S. anti-dumping policies were unfair. The concept of ‘dumping’ occurs when foreign imported goods are considered by the domestic government to be priced lower than fair market value. Anti-dumping policies are a protectionist measure used to prevent foreign firms from flooding the market with cheap goods. While protectionist policies are commonplace in the world market, tensions have been historically high between the U.S. and China, considering their current trade war. The WTO has backed up the Chinese government, stating that the U.S. policies weren’t concurrent with global trade rules. This decision has come at a tense time, with the two largest economies in the world hopefully coming to a trade agreement, while Washington’s resentment towards the WTO dispute process builds.
China and the United States have been engaged in an 18-month long trade war. The Trump administration has branded themselves with the protectionist motto, “America First”, which complemented President Trump’s rhetoric about countries “taking advantage” of America, primarily talking about China. Tariffs were initially placed on Chinese goods with the logic that American consumers should be paying a “fair price”, however those taxes ultimately end up falling back onto American consumers. A tariff is a tax placed on imported goods and foreign firms simply to increase the price of the good to cover the cost of the additional tax. As long as consumers are still willing to pay for the good with the increased cost, the foreign firm isn’t significantly bothered, and the domestic firms actually need to increase their appeal in order to remain competitive. However, this conflict is more extreme than a single tariff, and China has also suffered a cost, estimated to be about $35 billion (USD) in recent months, half of which has hit the communications and technology manufacturing sectors. Recently, there have been talks of a resolution and hopes that a deal may even be signed later this year.
The involvement of the WTO has only caused Washington to bristle, as a contentious relationship between the U.S. government and the organization has existed for years across party lines. The U.S. claims that the WTO’s policies make it difficult for them to defend themselves against unfair trade practices making it hard to trust their resolution process. There have been numerous cases in which the WTO has consistently ruled against the U.S., primarily because their methodology used to determine “unfairly priced goods” has been historically disavowed by the organization’s Appellate Body. This was the case in the dispute against Canadian paper, in which the organization confirmed that the methodology violates international trade rules, which led to the organization ruling in favour of Canada. In a separate case against Brazil, the WTO also ruled against the U.S., citing that the U.S. was illegally subsidizing their own cotton producers. In both cases, the judgements were met with denial from the U.S. government that they were in the wrong, and claims that the appellate body had flawed reasoning and didn’t make binding decisions. Both cases were also met with pressure from the American government and recent threats from President Trump that the U.S. would pull out of the organization if there was no reform. While President Trump will still embrace the WTO’s grant to the U.S. last month, which is their largest settlement in history, any alignment between the organization and China is cause for distrust.
While these sanctions could provide some leverage for China in this trade war, it wouldn’t actually help them to implement them. China has said that new tariffs are a nonstarter for coming to a deal with the U.S., as it would complicate their negotiations when it’s truly in both country’s best interests to come to an agreement. The WTO should actually be more concerned for their future as this decision has made them an adversary to the U.S. Washington has already blocked new appointments for several judges’ positions in the trade dispute body and the organization could lose popularity very quickly if perceived as ineffective. The WTO fears that other countries will feel the need to take matters into their own hands to find economic justice. If more countries retaliate with their own tariffs and trade deals outside of globally agreed upon rules, there could be a significant increase in trade wars and global economic instability.
It’s clear that neither country is winning this trade war. However, there are several countries not involved that are economically benefiting, for now. Countries such as Vietnam or Mexico are seeing a large influx of production, with companies diversifying their portfolio to avoid suffering the brunt of the tariffs. While economies are booming, it complicates political situations. Vietnam has recently become a large exporter to the U.S., but still has a large trade imbalance with China, leaving them in tight economic relationships with warring countries. It also increases scrutiny on business standards and policies, as countries that aren’t prepared for a sudden increase in production can be overwhelmed. They could develop a negative reputation if they’re found to be an insufficient replacement to powerhouse economies, which is a tall order.
This decision raises more tensions between the WTO and the U.S. rather than between the U.S. and China. Despite the organization being far from perfect, the Trump administration is bordering on undermining a global institution that regulates trade policies, which is more important than ever at this time of economic instability. It looks like there’s a slim to none chance that China will put these sanctions into effect if they remain committed to working out a deal, which is a relief for everyone involved. At this time, the best resolution would be any resolution that China and the US can come to, which would promise economic stability, domestically and globally.