Former Trade Diplomat: U.S.-China Trade War Looming
The administration today announced tough trade actions against China in response to the country's practices on intellectual property rights and forced technology transfers.
Wendy Cutler, former acting deputy U.S. Trade Representative, writes below that China's unfair practices should be addressed, but that bv imposing unilateral tariffs in a way that is inconsistent with the World Trade Organization (WTO), the administration has made U.S. protectionism, rather than China's malfeasance, the focus of the story.
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Wendy Cutler, vice president, Asia Society Policy Institute; former Acting Deputy U.S. Trade Representative
What Happened Today?
The President announced today a three-pronged strategy for addressing Chinese unfair trade practices on intellectual property protection and forced technology transfer, including raising tariffs against certain Chinese imports valued at $50 billion; bringing a WTO dispute settlement case against China’s discriminatory licensing practices; and restricting Chinese investments in the United States with more details on the specifics to be announced by Secretary Steven Mnuchin in the coming weeks.
How Will China Hit Back?
It’s hard to see how we are going to avoid a trade war. China, which earlier was more measured in its comments, made clear earlier today in Beijing that it will retaliate against the United States.
China has a variety of tools to use in response to U.S. actions. For example, it can raise tariffs against certain U.S. products; file a WTO case, against U.S. tariff actions; and/or harass US companies by requiring inspections, delaying procurements, or imposing other regulatory measures.
Whether we actually find ourselves in a full-fledged trade war will depend on whether the U.S. and China take additional measures beyond their opening shots.
What Happens Next?
It should be noted that the U.S. will not impose tariffs immediately. According to today’s announcement, it first will publish a potential list of products for retaliation and seek public comment during a 30 day review period. It will then consider the comments received, finalize the product list and instruct customs to act. This process could take at least six weeks, but likely longer.
The fact that the administration did not make public its proposed retaliation list of products today is a bit curious.Typically, this would accompany an announcement. I suspect that it signals that there are still inter-agency disagreements on certain products, particularly on whether to include consumer products like footwear and apparel.
It’s possible that during this time period, the U.S. and China could agree on a way forward to address U.S. concerns and avert these actions being taken. However, it’s hard to be optimistic on this front given the fundamental differences between the world’s two largest economies.
Is There Merit to the Administration’s Action?
The trade actions announced today by the President are designed to respond to serious unfair Chinese trade practices on intellectual property rights protection and forced technology transfer, which the administration lays out in detail in an almost 200 page report. Concerns in these areas have been heightened by the China 2025 initiative under which China explicitly lays out a plan to achieve global dominance in a series of advanced technology sectors, including new energy vehicles and artificial intelligence.
I couldn’t agree more with the administration that these unfair practices need to be addressed. Where I differ, however, is how best to address these valid concerns in a way that minimizes harm on the United States.
What Could the U.S. Have Done Differently?
In my view, imposing tariffs is not the way to go. Such unilateral action is inconsistent with WTO rules and invites counter-retaliation. Tariffs will hurt U.S. consumers, workers, and companies. I'm certain the administration did its best to develop a tariff retaliation list that maximizes the pain on China and minimizes the pain on the United States, but this is easier said than done.
Instead of unilateral tariff action, I believe that it would have made more sense to work with a coalition of countries whom share our concerns and to respond in a way that does not run counter to our WTO obligations. Regrettably, our steel and aluminum tariff actions to be implemented tomorrow have likely dampened the enthusiasm of many of our trading partners to work with us on China or other issues.
A number of trade ministers and senior officials from all around the world have been to Washington recently to seek country exclusions from impending steel and aluminum tariff action. While I suspect that the China issue was raised, the focus of these meetings was most probably on steel and aluminum. This was a missed opportunity.
Finally, with the imposition of the steel and aluminum tariffs due tomorrow and today's announcement on China tariffs, I fear that the world will focus their ire on what they perceive as U.S. protectionism and disregard for the WTO system, rather than unfair Chinese trade practices.
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