The ‘Chinese shock’ still shakes the world as it grapples with the future of commerce


(Bloomberg) – Twenty years after China’s accession to the World Trade Organization, governments around the world are wondering how to handle the heavy weight of exports over the next two decades.

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While it is widely accepted, even by those who brought China into the global trade tent, that its entry did not go as planned, there is little consensus on what to do about it. .

Former President Donald Trump’s punitive tariffs failed to reduce the U.S.-China trade imbalance as Chinese exports increased during the pandemic. Meanwhile, a “coalition of the willing” ready to denounce China for alleged unfair practices has yet to solidify.

“It is very uncertain what position we are in now,” said Charlene Barshefsky, who was the former senior trade official of former President Bill Clinton and one of the architects of China’s entry into the country. ‘WTO. “It is an event marked by inconsistency, by varying degrees of failure and a lack of a common goal. “

For China, the benefits of a rules-based international order are clear. Over the past 20 years, it has grown from the sixth to the second largest economy, with GDP increasing 11-fold to nearly $ 15 trillion, while foreign direct investment has quadrupled.

For rich countries, the picture is mixed. Exporters have taken advantage of deep concessions that China has made to join the WTO, but increased competition from cheap Chinese products has hurt foreign workers, especially in regions where manufacturing is labor-intensive. such as electronics, clothing, tires, steel and aluminum.

“We were losing jobs here in North Carolina,” said Joel Smith, a second-generation furniture salesperson in Fayetteville, North Carolina. “If you only have to pay people a dollar an hour and health care is a band-aid and an aspirin, you can bankrupt a lot of people.”

This downside is evident in the research of economists such as David Autor, David Dorn, and Gordon Hanson, the early analysts of what they called the “China Shock”. Their latest article found that job losses in the United States due to China’s economic strength – which they previously estimated at over 2.5 million – continued to reverberate in American communities through 2019. .

Such an analysis explains why China has become so toxic in Washington, with lawmakers on both sides of the aisle lining up to call its WTO membership a job-destroying mistake.

During the Trump administration, populist Republicans like Missouri Senator Josh Hawley said the WTO should be abolished, and Trump’s trade chief Robert Lighthizer succeeded in denigrating the organization’s dispute resolution function. .

Despite a more positive change in tone towards the WTO, President Joe Biden has largely maintained his predecessor’s hard-line approach. Biden is actively crippling the WTO’s appeals body and continues to impose Trump’s unauthorized tariffs on $ 300 billion in Chinese exports.

“For too long, China’s lack of adherence to global trade standards has undermined the prosperity of Americans and others around the world,” US Trade Representative Katherine Tai said in a recent speech.

Trade

In October, the United States accused its closest economic rival of violating international trade rules. Australian Ambassador to the WTO George Mina has warned of Chinese economic coercion and said Beijing’s business behavior is increasingly motivated by “political considerations.”

The list of grievances includes criticisms that the Chinese government subsidizes domestic companies at the expense of foreign competition; that it plays an oversized role in the management of state-owned enterprises; that access to the Chinese market remains difficult for foreign entrants; and intellectual property theft remains widespread.

China rejects the accusations, saying it welcomes foreign investment and has strengthened laws to protect intellectual property, among other measures.

“If you check the timetable, you will see that we have completely fulfilled our obligations and commitments,” Chinese Vice Minister of Commerce Wang Shouwen said following the latest WTO review of Chinese trade practices.

Despite the pangs of trade, international companies are expanding their activities in China. Some 97% of companies said they intend to continue investing in China, mainly due to the country’s large market, continued growth and well-developed supply chains, according to a recent HSBC report. Holdings Plc. investigation.

While C-Suite executives remain fixated on business opportunities in the Middle Kingdom, Western governments are looking for new tools and strategies to counter China’s economic might. For many, their conclusion is that the WTO is not for work.

“The biggest problems – such as complaints about subsidies and other benefits for Chinese state-owned enterprises – stem in part from the lack of WTO rules on such issues,” said Robert Zoellick, who, as as US Trade Representative in 2001, helped finalize China’s WTO. Entrance.

It is true that “the existing multilateral trade rules have flaws,” said Zhang Xiangchen, deputy director general of China at the WTO.

WTO rules “have not served as a platform for members of different models to cooperate and compete,” said Zhang, who claims to have memorized the 34,000-word WTO rulebook. “China and other WTO members have to adapt to each other.”

The Biden administration’s plan is to work with allies of the United States to present a coordinated approach to China. This year the US and EU patched up their biggest trade fights of the Trump era, and the US is now pushing forward plans for a new economic framework for the Indo-Pacific region.

The United States has also relaunched a dormant effort to align the EU and Japan on a strict set of rules to govern industrial subsidies, state-owned enterprises and other trade-distorting practices.

If successful, the initiative could represent the biggest reform of the world trading system since the creation of the WTO. But getting China to join the talks, which are ostensibly aimed at curtailing the Beijing state-led economic model, remains a major hurdle.

One thing is clear: Western governments are much more cautious about the competitive threat posed by China today than they were a generation ago.

“People can say that we should have thought better about what China will be like in 20 years,” said Pascal Lamy, the top European trade official in 2001. “I accept this criticism. We were probably a little short-sighted.

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