Publicado en: Academia Colombiana de Derecho Internacional – ACCOLDI
This U.S.–China Trade War Needs to Stop!
It seems logical: it is always better friendship than strife. In other words, transactional costs of cooperation, and win-win solutions between the parties to a dispute, are always lower than in litigations. Only one is supposed to win when fighting. Rather, both the U.S. and China need to settle their differences, in favor of their economies, jobs, and the very Trading System’s survival.
However, achieving that goal has been difficult until now due to several factors. Yet, both parties continue to face billionaire losses thereby harming many other countries’ economies. The damages will be grave for many if nothing is done soon to fix it..
Mutual Injuries
Up to date, the U.S. and China have placed reciprocal tariffs on nearly US$360 bn in total, amid the ongoing war despite the first 90 days of truce agreed on last December at the G20 summit. When splitting the tariffs imposed, the cumulative tariffs would show U.S. going with $250 bn whereas China would complete $110 bn in retaliation. The U.S. has kept pushing these tariffs as a way to get China to address U.S.’ concerns on intellectual property protection. See, for example, the U.S.’ recent sort of self-defeating bans on Huawei. Yet more restrictive measures are likely to be adopted.
Needless to mention the contrast with tariffs in the steel and aluminum industry, where significant losses remain to injure the industry’s global chain. At least $9,428,362 was spent last year by large U.S.-based companies lobbying to convince the U.S. Government to repeal these measures. Despite enormous efforts, mainly before the Department of Commerce, trade associations, the U.S. Chamber of Commerce, importing companies, or law firms have failed in removing these tariffs.
Diplomacy Should Prevail
A widely known principle for successful negotiations is reciprocity, namely, obtaining concessions by conceding concessions. Hence, diplomacy should prevail as suggested by several recent facts involving both parties.
First, the basic rule of interdependency so advises. The U.S. needs to bear in mind that, as of today, China is the second-largest world economic power. For example, it became the first world exporter of goods since long ago (2007) and also the first U.S.’ goods supplier over the last years (since 2003) in the absence of an FTA in between for the last case. In turn, Mexico and Canada haven’t been that ‘lucky’, despite being the U.S.’ natural NAFTA partners, witnessing this significant U.S. reliance on Chinese imports. Exhausting diplomacy might be useful for the U.S. to, overarchingly, protect its global leadership and, particularly, secure its goods sources. Likewise, its application would invigorate China’s rising geopolitical influence. Worth trying.
Second, the U.S. is facing several claims at the WTO, which have been filed by China, the E.U, Russia, Canada, and some other members affected by the U.S’s Section 232 restrictions on steel and aluminum imposed in 2018. Members who challenge these measures argue -and I do concur with them- that these don’t meet the legal standards for the adoption of security exceptions of Article XXI GATT. Neither Safeguard provisions of Article XIX GATT nor the fundamental non-discrimination principle of Most Favored Nation, MFN, Article I GATT, are observed therein. Interestingly, a recent WTO’s panel made the first substantive ruling on GATT’s security exceptions. It might critically weaken the U.S’s arguments within the aforementioned disputes, hence pushing again for either embracing a negotiation or, likely, withstanding a defeat.
Third, recent China’s request for the suspension of the proceedings on its WTO cases against the U.S. and the E.U. over its market economy status might prepare the ground for said negotiation. The current trade war might be rooted in China’s accession to the WTO in 2001. Nearly 17 years ago, China had to buy a ticket to become a member of this club thereby promising to abide by the rules of a western-based economic model: a transition from a non-market to a market economy system. That is why the provisions of paragraph 15 of its Protocol of Accession to the WTO allowed for a today disputed, time-limited application of alternative methodologies to more easily apply trade remedies measures on Chinese imports.
While upon the expiry of those rules on December 11, 2016, China filed cases against those members before the WTO, the final ruling would be against China which would have preferred pulling its suit before facing the official report. Consequently, the parties could leverage this scenario as an additional reason to foster that broader negotiation.
Finally, albeit weak previous attempts to make progress in unleashing this knot by lifting a substantial part of the tariffs, the upshots of this year’s Japan G-20 summit brought about a new opportunity for resuming trade talks. Applying the principle of reciprocity would have proven helpful since Huawei’s could be a great example of an early payoff of following this principle.
Avenues To Consider
The U.S. and China might consider two major choices to address this problem. One, looking for a broader -sort of new accession- negotiation at the WTO regarding China’s economic model. Two, keep fighting as both and everyone suffer the deplorable consequences.
Though the forthcoming campaign should suggest a change of path in this trade war, regretfully, the current average democrat’s position towards trade wouldn’t promise good prospects for negotiation. Whoever the winner, it shall feel the pain of having shot -or continue shooting- its own foot.