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China boxes clever in trade dispute with US
Barack Obama’s decision last week to impose emergency tariffs on Chinese tyres has fuelled an increasingly familiar Sino- US war of words over trade.
Beijing launched an investigation yesterday into whether US poultry and car parts were being unfairly dumped in the Chinese market. It also requested formal consultations at the World Trade Organisation into the US tariffs – the first step in trying to have them declared illegal.
Whether it will succeed is unclear. The particular “safeguard” measure that the US president invoked was, after all, written specifically to allow the US to block Chinese imports as part of the price for China joining the WTO in 2001.
However, trade experts and lawyers say the episode does show the increasingly sophisticated legal strategies used by Beijing in its many disputes with trading partners, and the way it maximises political effect while trying to limit the actual economic damage.
Opinion is divided as to whether this dispute – while breaking ground by using a particular trade law for the first time – is likely by itself to set off a protectionist spiral.
Gao Yongfu, an expert in trade law at Shanghai Institute of Foreign Trade, said: “I think it unlikely that this dispute will be limited to just one industry – it’s likely to spread to others.”
Prof Gao said other trading partners, including the European Union, were likely to follow suit, broadening if not deepening the restrictions on trade.
Yet other trade lawyers and economists noted that China had threatened to retaliate in a way that had high political salience but modest economic impact.
Beijing has built a reputation for rapid but controlled retaliation during trade disputes. One Washington trade lawyer said: “China always responds, so I don’t think this escalates. It just repeats each time the US does something.”
Arthur Kroeber of Drag- onomics, a Beijing-based economic consultancy, said: “Chinese tit-for-tat measures are unlikely to wreak significant economic damage . . . We don’t believe that the case marks the start of Depression-type trade wars.”
The products that Beijing is threatening to target – while denying that it is retaliating for the tyre tariffs – are politically importance in the US.
Poultry farmers are a vocal part of America’s influential farm lobby, and are particularly aggressive in seeking out export opportunities, because the US market is largely saturated. The manufacture of cars and car parts is often heavily unionised and located in important Midwest states.
China’s choice of instrument is also telling. Besides proposing “anti-dumping” measures on imports deemed to be priced unfairly low, Beijing is looking at “countervailing duties”, used against goods that receive government subsidies.
Since the US frequently accuses China of illegal state aid to its exporters, Beijing would score valu- able propaganda points by making a counter-accus- ation stick, particularly in light of the vast US motor industry bail-out.
The Washington trade lawyer said: “The interesting part is adding a countervailing duty case. China is [already] running one on US steel, but auto parts from the bail-out money and a US agricultural product are more politically sensitive.”
The economic impact could be small, however. Both sectors are already the subject of separate disputes and involve limited trade volumes. In response to a two-year-old US ban on processed chicken imports from China, Beijing has banned imports of US chicken from several states and, in recent weeks, reports have emerged of an unofficial block on new shipments of US poultry.
Meanwhile, US exports of auto parts to China have been relatively limited, in part because of high tariffs that Beijing is only now beginning to dismantle after losing a ruling at the WTO.
From a distance, China’s reaction may look like it is lashing out in anger. But in the eyes of some trade experts, it is preparing a surgical counter-strike.
