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Trading Blows
China will defend itself against U.S. protectionism
By Deng Yaqing | NO. 14 APRIL 5, 2018

The 9999th Boeing 737-800 prepares to depart for China from Boeing's Seattle airfield in Washington, the United States, on March 24. The passenger jet was delivered to Chinese carrier Okay Airways the previous day (XINHUA)

After introducing tariffs on steel and aluminum imports, U.S. President Donald Trump again caused sensation on March 22 by signing a memorandum allowing the United States to levy tariffs on up to $60 billion of imports from China and restrict Chinese investment.

The memorandum is reportedly the result of a Section 301 investigation launched last August into alleged Chinese intellectual property and technology transfer practices.

Derived from a 1974 trade law, Section 301 was once used liberally in the 1980s and early 1990s, allowing previous U.S. administrations to unilaterally impose tariffs or other trade restrictions on foreign countries, but has been rarely used since the World Trade Organization (WTO) came into being in 1995.

"The investigation, based on U.S. domestic laws, goes against the rules of international trade," said Wang Yiming, Deputy Director of the Development Research Center of the State Council, in an interview with Xinhua News Agency, describing the logic behind the U.S. manoeuvres as "rough and outdated."

In response to the tariffs imposed on Chinese-made steel and aluminum products, China's Ministry of Commerce (MOFCOM) unveiled plans to impose tariffs on up to $3 billion worth of goods from the United States across seven categories and including 128 products, which are listed in two parts.

The first part covers a total of 120 taxes, involving $977 million of U.S. exports to China, including fresh fruit, dried fruit, nut products, wine, modified ethanol, American ginseng and seamless steel pipes, which are expected to have a 15 percent tariff imposed on them.

The second part covers eight taxes amounting to $1.99 billion of U.S. exports to China, including recycled aluminum, pork and pork products, which will likely be subject to a 25 percent tariff.

A MOFCOM spokesperson pointed out that the imposition of tariffs by the United States is in fact tantamount to a safeguard measure. In accordance with the WTO Agreement on Safeguards, China has formulated a list for the suspension of concessions. If China and the United States are unable to reach a trade compensation agreement within the stipulated time, China will exercise the right to suspend concessions for the first group of products, and will implement the second after evaluating the impact of U.S. measures on China.

According to a statement on the MOFCOM website, China firmly opposes the unilateralism and trade protectionism carried out by the Trump administration at present, as it disregards China's endeavors to strengthen the protection of intellectual property rights and ignores the rules of the WTO.

Regarding the Section 301 investigation, the Chinese Government has made it clear that "China does not want to fight a trade war, but that it is absolutely unafraid of doing so."

"We are confident and capable of facing up to any challenges. It is hoped that the United States will "pause at the brink of the precipice" and make prudent decisions so as not to put bilateral trade relations in jeopardy, said the statement.

Zhu Min, head of the National Institute of Financial Research at Tsinghua University, suggested that the move by the United States would harm the interests of both China and itself, and more importantly, damage the global industrial chain.

Given the two nations are key participants in the global industrial chain, once bilateral trade frictions escalate, the cost, flow and price of global commodities would suffer unpredictable repercussions, affecting an estimated $400 billion or more of global industry, Zhu told Xinhua.

Opposing unilateralism

"China's integration with the world will continue to progress," said Premier Li Keqiang at a meeting with around 100 overseas representatives of Fortune 500 companies, leading research institutions and international organizations as part of the 2018 China Development Forum which was held in Beijing from March 24 to 26.

Li noted that both China and the United States should promote trade equilibrium by expanding the volume of trade and pragmatically tackling any friction and differences through dialogue and negotiation, while the international community should make concerted efforts to defend the multilateral system of free trade and oppose protectionism and unilateralism in order to sustain the recovery of the world economy and international trade.

Closing the door to other countries also blocks a country's own way out, Li said.

China-U.S. economic and trade relations generate mutually beneficial results, and it is quite normal for problems like trade imbalance to emerge in the process of rapidly expanding bilateral cooperation, according to Zheng Zeguang, Chinese Vice Minister of Foreign Affairs, at the China Development Forum.

Given that China is the world's largest developing country and the United States the largest developed country, maintaining a healthy and stable relationship not only serves the fundamental interests of the two peoples, but is also in line with the expectations of the international community, said Zheng, who said that the common interests of China and the United States outweigh their differences.

A recently released study by the Information Technology and Innovation Foundation, a U.S. think tank, shows that if the Trump administration imposes a 25-percent tariff on imports of information and telecommunication technology from China, the U.S. economy could incur losses of $332 billion over the next decade.

China has never made a conscious effort to attain a trade surplus with the United States said Long Guoqiang, Deputy Director of the Development Research Center of the State Council, on the sidelines of the China Development Forum, pointing out that China has been the market in which the United States enjoys its fastest export growth, and that an important cause of the current trade imbalance is that U.S. goods are less competitive in the Chinese market.

"To reduce the trade deficit, the United States should start by improving the competitiveness of American products, rather than diminishing Chinese imports," said Long.

Extensive opposition

"Tariffs need to come down, and every effort of protectionism will ultimately be damaging to the world economy as well as to the local economy," said Hans-Paul Burkner, Chairman of the Boston Consulting Group, who expects to see China and the United States find a solution to trade disputes, and the further opening up of markets in China, the United States, Europe and the rest of the world.

China is better positioned and has a wider range of instruments at its disposal than the United States to cope with economic disturbance if trade tensions between the two escalate further, said Joseph Stiglitz, a professor at Columbia University, at the China Development Forum, explaining that China has increasingly shifted toward domestically driven demand and can use government projects to increase demand in areas that might be suffering from trade frictions with the United States.

Even if China changes its trade policies, it will not help resolve Washington's issue of multilateral trade deficits as it is a consequence of the macroeconomy, and the United States will have larger deficits with other countries, he added.

The Nobel Prize-winning economist explained that the U.S. Government is very limited in what it can do as it has become highly dependent on low-cost imports.

"For instance, if the tariffs imposed on Chinese textiles and apparel increase, then the cost of living in the United States will go up, the Federal Reserve, with its mindset, will increase interest rates which will slow the economy and create unemployment," said Stiglitz.

"Countries that embrace openness, that embrace trade, that embrace diversity are the countries that do exceptional—and the countries that don't, don't," said Tim Cook, CEO of Apple Inc., during a panel at the forum. "My belief is that one plus one equals three. The pie gets larger, working together."

Copyedited by Laurence Coulton

Comments to dengyaqing@bjreview.com

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