Tuesday, March 6, 2012

And Now for a Much-Needed Dose of US-China Trade Optimism

After today's lopsided vote on whether to maintain the United States' antagonistic countervailing duty policy against China and other "non-market economies," it's easy to get depressed about the state of US-China trade relations.  Fortunately, a brand new paper from Cato's Dan Ikenson gives us a much-needed dose optimism, and some solid guiding principles for the future of US-China trade relations.  The paper opens with the pretty dismal state of finger-pointing bilateral affairs:
An emerging narrative in 2012 is that a proliferation of protectionist, treaty-violating, or otherwise illiberal Chinese policies is to blame for worsening U.S.-China relations. China trade experts from across the ideological and political spectra have lent credibility to that story. Business groups that once counseled against U.S. government actions that might be perceived by the Chinese as provocative have changed their tunes. The term "trade war" is no longer taboo.

The media have portrayed the United States as a victim of underhanded Chinese practices, including currency manipulation, dumping, subsidization, intellectual property theft, forced technology transfer, discriminatory "indigenous innovation" policies, export restrictions, industrial espionage, and other ad hoc impediments to U.S. investment and exports.

Indeed, it is beyond doubt that certain Chinese policies have been provocative, discriminatory, protectionist, and, in some cases, violative of the agreed rules of international trade. But there is more to the story than that. U.S. policies, politics, and attitudes have contributed to rising tensions, as have rabble-rousing politicians and a confrontation-thirsty media. If the public's passions are going to be inflamed with talk of a trade war, prudence demands that the war's nature be properly characterized and its causes identified and accurately depicted.

Those agitating for tough policy actions should put down their battle bugles and consider that trade wars are never won. Instead, such wars claim victims indiscriminately and leave significant damage in their wake. Even if one concludes that China's list of offenses is collectively more egregious than that of the United States, the most sensible course of action — for the American public (if not campaigning politicians) — is one that avoids mutually destructive actions and finds measures to reduce frictions with China.
Ikenson proceeds to systematically make his case, noting the recent outbreak of tit-for-tat US-China protectionism and the recent CVD/NME debate.  He then concludes:
The most significant determinant of the quality and direction of the U.S.-China relationship is American self-confidence. In other words, U.S.-China relations will be driven more by actions in Washington than by actions in Beijing. If the U.S. economy starts to grow at a stronger pace and businesses begin to invest and hire more rigorously, the temptation of politicians and the media to scapegoat China for self-induced, domestic woes will diminish.

Even though China-bashing polls well, responsible policymakers should be looking beyond the politics to find bridges, olive branches, and solutions that remind people in both countries of the importance and mutual benefits of the relationship. Gestures of goodwill could go a long way toward stopping and reversing the recent deterioration of relations.
Good stuff.  I particularly liked this additional commentary from Ikenson on Cato's blog:
But before getting all righteous and patriotic and demanding that China be deemed an economic pariah worthy of exceptionally harsh treatment, keep in mind that the U.S. government has been found out of compliance with its WTO obligations more than any other WTO member, and it remains out of compliance on a few issues to this very day.

In some respects, the Chinese are emulating the tack taken by U.S. policymakers during the past three presidential administrations and ten congresses by presuming there is no policy or practice that violates WTO rules unless and until that policy or practice has been determined by the WTO Appellate Body to be out of conformity, and sometimes not until after retaliation has been authorized, and sometimes not even then.
The CVD/NME issue is a perfect example of the United States' problematic "do-as-I-do-not-as-I-say" trade policies.  USTR has repeatedly complained about China's opaque and WTO-inconsistent imposition of trade remedies on US exports, yet at the very same time it vigorously defends the United States' own opaque and WTO-inconsistent AD/CVD policy on Chinese (and other NME) imports.  That's not really the way to ensure better Chinese behavior on the global trade front, now is it?

It would, however, make an awesome 1980s public service announcement:

Be sure to read Ikenson's new paper here.

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