In her key speech outlining the U.S. administration's approach to trade with China, United States Trade Representative Katherine Tai highlighted the crucial importance of China-U.S. bilateral relations using the keywords “durable coexistence” — in contrast with the new cold war advocacy of Donald Trump.
“How we relate to each other does not affect our two countries; it impacts the entire world and billions of workers,” she said. Hence the two countries should coexist and last long. It is certainly a positive concept.
To make this possible, Tai called for fair and managed competition. It is a view that is certainly more positive than that of of Robert Lighthizer, her predecessor, and thus will create new opportunities for early China-U.S. trade dialogue.
Tai's narrative, however, puts China in a rule-breaker position first, as a way to justify all her subsequent approaches. She describes China as a “state-centered economic system” with a “lack of adherence to global trading norms” that has “undercut” Americans and all others around the world.
Facts speak loudly
Tai said that in the decade from the late-1970s to mid-1980s, U.S. exports to China grew by a factor of 14. Then, she asserted, after China's accession to the World Trade Organization, it has shown a “lack of adherence to global trading norms.”
But her trade growth figure is not accurate. According to China Customs, U.S. exports to China in 1979 — the starting year after the establishment of diplomatic ties — was $1.86 billion. It grew to $26.21 billion in 2001, the year China joined the WTO, a growth multiple of 14. Therefore, the 14 times growth happened over a time span of 22 years before China's WTO accession, instead of by the mid-1980's.
After China's accession, U.S. exports to China grew much faster than its global exports and imports from China. According to the U.S. Commerce Department, during the 18 years since China's accession to the WTO, U.S. global exports increased from $693.1 billion in 2002 to $ 1,424.94 billion in 2020, up 105.6 percent. Its exports to China during this period, however, shot up 462.5 percent from $22.13 billion to $124.49 billion — more than four times faster.
How can the U.S. have grown its exports much faster to a country that doesn't adhere to global norms over the rest of the world, which supposedly adheres to global norms? After all, during the same period, U.S. imports from the world increased by 101.1 percent, while that from China grew by 247.3 percent. U.S. global exports and imports were growing at similar rate while its exports to China grew twice as fast as its imports from the country. How can we explain the claim that U.S. exports to China far outperformed imports and yet “undercut Americans and all others around the world”?
The U.S. steel industry problem is the result of its own slow restructuring, not victimization by China. During the author's service at the Chinese consulate in New York in 2002, U.S. President George W. Bush announced a steel import surcharge due to the mounting increase. But it had little to do with China, as China accounted for less than 3 percent of U.S. steel imports, which is negligible.
This pattern has continued until today. In 2018 when Trump launched steel and aluminum tariffs worldwide, the main targets were Canada, Brazil, Turkey, Russia, Germany, Japan and South Korea. China accounted for roughly 2.5 percent of U.S. steel imports. During H1 of 2021, China's share of U.S. steel imports was virtually unchanged at 2.4 percent.
China is not dumping its steel worldwide either. During early 2000s, China did encounter various complaints from other parts of the world over its fast-increasing steel exports; however, the situation has changed fundamentally since then, as China has made great control efforts. In 2020, it exported 51.4 million tons of steel and imported 37.9 million tons, a net export of 13.5 million tons, while Japan and South Korea had 29.8 million tons and 16.1 million tons of net steel exports, respectively.
China's solar panel exports to the U.S. fell by 90 percent in 2017 following the imposition of steep U.S. tariffs and thus has had little impact in the U.S. market since then.
Records of the WTO dispute settlement mechanism, or DSM, show that the U.S. is the largest rule breaker. As of Oct. 7, 2021, 606 WTO DSM cases have been filed —with the U.S. as respondent in 159 cases, more than one-fourth of the total and more than those of the EU (89 cases) and China (47 cases) combined. China's WTO compliance is judged by the WTO General Council, not by individual members, including the U.S. China's trade policy has passed all seven interim assessments of the council. The U.S. has not won all its cases against China at the WTO. On July 16, 2019, the WTO DSM ruled that the 11 U.S. countervailing duty cases on China's solar cells and wind power towers violate WTO rules. On Nov. 11 of that year, the WTO authorized China to levy retaliatory duties on the U.S. of $3.6 billion, the largest of the kind in recent years.
WTO compliance required
The centerpiece of U.S. Trade Representative Tai's speech was China's “government centered” economic system in general and industrial policy in particular. China's chip-development strategy and financial support was the focus. Ironically, both the U.S. and EU are doing the same. A couple of months ago, the U.S. Senate was moving on the Chips for America Act to enhance the country's self-sufficiency in microchip manufacturing, testing and sealing. The act was a follow-up to the larger Endless Frontier Act, earmarking $110 billion for AI, chips and quantum computing. On Sept. 15 this year, the European Commission announced to the European Parliament that the European Chips Act was in the pipeline, envisioning 134 billion euros to considerably enhance the self-sufficiency of the EU. Why blame China only?
WTO rules do not outlaw industrial policies as commonly practiced by most of the world's leading economies, but they compel nondiscrimination or national treatment for all business entities within the border. The latest guidelines from China's State Council promoting the integrated circuit industry specify that all enterprises in China, private or foreign, as well as State-owned enterprises, are eligible for the same support measures. Hence, the self-sufficiency rate includes the share of foreign business in China.
National treatment can also be found in new-energy vehicles. The Chinese Ministry of Industry and Information Technology recently announced subsidies over 2016-20 for NEV manufacturers. Tesla, an American automaker, obtained 2.1 billion yuan ($325 million), based on the same standard used for other NEV manufacturers in China, including BYD, Beijing Auto, Dongfeng Auto and others.
An SOE is a type of ownership found in many countries, not just in China. China's SOEs account for 33 percent of the total economy, similar to France but much lower than Sweden, where SOEs represent 60 percent of businesses. Hence, the issue in question is not ownership, but national treatment.
SOEs account for a much smaller share of China's exports. From January to August this year, of China's total global exports of $2.1 trillion, SOEs accounted for $172.16 billion, or 8.2 percent. Foreign invested businesses accounted for $721.32 billion, or 34.4 percent. Private businesses accounted for $1,163.6 billion, or 55.5 percent. And other ownerships accounted for the remaining 1.8 percent. If China had been heavily subsidizing exports, the largest recipients by far would be private and foreign businesses, not SOEs.
Based on the above elaboration, the only correct and feasible pathway to manage bilateral trade and competition is to seek common ground under rules and norms. It is imperative that only WTO rules apply. Any U.S. or Chinese domestic laws contravening WTO rules must not apply. China and the U.S. should work out the whole list of each other's concerns, identifying and discussing the problems and solutions strictly in accordance to relevant WTO rules on subsidies, government policies and national safety. It is the only way to find a common, solid rule base and thus sustain the durable coexistence of the world's two largest economies.
