Unilateralism won't make trade fair

LU Xiankun China Plus Published: 2018-03-29 11:44:25
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By Lu Xiankun

Recent actions by Trump administration was alarming, but not unexpected. For long, the US has been complaining that other countries, such as China, failed to provid the same treatment for US exports as the US for imports from these countries. Or, in President Trump’s own words, these countries are not reciprocal towards the generous US, so trade with them is not fair and has to be changed. 

Fair trade, or reciprocal treatment, is relative as well as historic. The fairness may vary depending on whom and when we contextualize such trade. Let’s take the example of tariff duty on motor vehicles, which is cited by both President Trump and Elon Musk to elaborate how unfair is the trade of motor vehicles between the US and China. Simply looking at the number, as Trump and Musk have done, this trade looks pretty “unfair” since the US tariff duty on imported motor vehicles is only 2.5%, albeit light trucks and SUVs have a much higher tariff of 20%, while Chinese tariff rate is 25%. 

A cargo ship to Singapore departs from Qinzhou bonded port, south China's Guangxi Zhuang Autonomous Region, Nov. 5, 2015.[Photo: Xinhua]

A cargo ship to Singapore departs from Qinzhou bonded port, south China's Guangxi Zhuang Autonomous Region, Nov. 5, 2015.[Photo: Xinhua]

However, one should recall that this situation does not come out of air, rather it is the result of years of painstaking negotiation of China’s WTO accession. The US was the leading one among all WTO members in clinching in 2001 that deal, including the very tariff on autos, which was then deemed by many as a great success. 

In 2001, China’s economic size was only one eighth of that of the US and its per capita GDP was the level of the US in 1900. On motor vehicles, China produced only 2.3 million automobiles and exported little, if anything, to the US. It should also be underlined that China’s auto tariff was much higher, 180% (below a displacement of 3.0L) and 220% (above 3.0L), in 1986, when China started its accession negotiations. In that context, 25% vis-à-vis 2.5% was not only fair to, but also hailed by the US as a great achievement. The then US President Bush welcomed China’s accession into the WTO, saying that this “will strengthen the global trading system and expand world economic growth.” Before that, the US Big Three auto makers also welcomed US-China bilateral agreement on China’s accession, pointing out that the reduction of auto tariff rate, together with other provisions for better treatment on sales and loans, would provide more opportunities for the US motor vehicles in China. 

Of course, after so many years, situation is much different from 2001. China is now the second largest economy in the world and has, since 2019, overtaken the US as the world’s largest producer of and market for motor vehicles. In 2017, China produced 29 million motor vehicles and sold 99.6% of them. In the same year, it exported 891,000 motor vehicles, a 25.8% increase over 2016, with the sales in North America countries growing most significantly. Though Chinese auto brands are still at the lower end of the market, Chinese players, such as Geely, is moving up in a dazzling manner through a series of acquisitions of foreign brands of Volvo, Proton and Lotus. 

In this new context, Trump administration seems to have a reason in claiming that auto trade, quite fair in 2001, may not be so fair now. You can mention other sectors where China’s tariffs are also much higher than those of the US. Anyway, China’s simple average tariff rate is 10%, about 3 times of the US 3.4%. However, in terms of trade weighted average tariff, the difference is much smaller with China standing at 4.4% and the US at 2.4%. Of course, tariff is only one of the many aspects to look at the liberalization level of a country. China has committed quite some so-called “WTO plus” provisions, with deeper concessions than other WTO members, including the developed ones. For example, based on WTO rules, the US can each year spend extravagantly 19 billion USD into its agriculture while China can’t spend even one penny. US has also been repeatedly criticized by China for its export restrictions of high-tech products and recent moves to contain Chinese investment, which are said to contribute to the US trade imbalance towards China. 

Therefore, on one hand, one can reason that a process of rebalancing is needed to better reflect the changed context of US-China trade relationship and to make this relationship fairer. However, on the other hand, such a process should look beyond tariff rates and look deeper into China-US trade relationship. Most importantly, such a process must not circumvent multilateral mechanisms and respect the “give-and-take” nature of trade negotiations. The toolbox of multilateral mechanisms, including its dispute settlement and councils and committees, or bilateral ones, including the four high-level dialogues established in 2017, in particular the Comprehensive Economic Dialogue, can prove much more useful than unilateral threats. 

In a word, unilateralism is like prescribing sleeping pills to treat measles, which will only get things worse. As WTO Director-General Roberto Azevêdo said on 23 March, actions taken outside the WTO mechanisms will “greatly increase the risk of escalation in a confrontation that will have no winners, and which could quickly lead to a less stable trading system”. Both the US and China are giants laden with special responsibilities to safeguard interests beyond their own by supporting a stable global system and engageing constructively through bilateral channels. 

 (Professor LU Xiankun is former senior trade diplomat of China and now Emeritus professor of University of International Business and Economics and Wuhan University of China. He is also Managing Director of LEDECO Geneva and Senior Vice President of Shenzhen UEB Technology Co. LTD.)

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