Amid trade war fears, an unresolved issue: how to get China to play fair

Ben Margot/AP
The container ship Maersk Emerald is unloaded at the Port of Oakland (Calif.) Thursday, July 12, 2018. President Trump is offering assurances that the US will 'ultimately' work out a 'pretty nasty trade battle' with China.
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The worries about a trade war are legion and have been growing. Rising trade barriers would push up consumer prices and slow the global economy. Already steel tariffs have cost some US workers their jobs. But trade became a big 2016 election issue for a reason: Many workers and businesses worry that unfair practices by China are eroding US manufacturing and technological leadership. Jennifer Hillman, a trade expert at Georgetown University, argues that the best way to put leverage on China would be for the United States to lead a coalition of nations in a big case before the World Trade Organization. Such a case would go beyond past efforts to use the WTO to settle disputes. So far, though, the Trump administration has been confronting other trade partners, not just China, on a range of issues. Worried about a damaging trade war, Republicans in Congress are joining Democrats in proposing legislation to curb President Trump's power to impose new tariffs, such as possible fees on auto imports. "There has been a losing sight of the real problems with China," Ms. Hillman says.

Why We Wrote This

For a seemingly dry subject, trade policy seems to resonate with Americans. Perhaps competitive disadvantage is intuitive. The idea of a trade war instills fears, but unfair practices breed resentment.

In news coverage of global tensions over trade, a dominant message has been one of growing concern over the damage that tit-for-tat tariffs would do to the global economy.

The worries are well founded – with forecasts ranging from rising consumer prices to falling exports and sagging economic growth. Tariffs have already resulted in layoffs at some US manufacturers. At others, supply chains have been disrupted, according to anecdotes in a Federal Reserve survey of businesses released Wednesday.

Yet, even as Republicans in Congress weigh a rare legislative effort to rein in one of President Trump’s policies, something important has been largely pushed out of the spotlight: that US experts widely agree that China is using unfair trade practices in ways that harm both the US economy and the goal of a rules-based system for global trade.

Why We Wrote This

For a seemingly dry subject, trade policy seems to resonate with Americans. Perhaps competitive disadvantage is intuitive. The idea of a trade war instills fears, but unfair practices breed resentment.

Jennifer Hillman, who has served on the World Trade Organization’s appellate body, lists a host of Chinese practices that run counter to the values on which the WTO was founded: heavy use of subsidies, theft of intellectual property or trade secrets, and requirements that US firms transfer technology to Chinese partners as a precondition of doing business in China.

But for more than a decade, it has proved hard to build a consensus – within the US or with global allies – on how to challenge China effectively. And although the Trump administration is trying to change that, its simultaneous focus on smaller trade disputes with Europe, Canada, and Mexico have created a distraction.

“There has been a losing sight of the real problems with China,” says Ms. Hillman, who now teaches at Georgetown University’s Law Center. “China didn’t do what it promised to do when it joined the WTO, which was to become a more market economy.”

No one disputes China’s right to develop its own economy, but what’s in doubt is the long-held hope among Western nations that the ruling Communist Party would, after joining the WTO, abide increasingly by the norms of Western market-based economies.

“The entire WTO framework, including its dispute settlement process, is premised on governments abiding by the rule of law and there being a fundamental separation between the state and the private sector. Neither is true in China,” Washington-based trade expert Rob Atkinson said in testimony to a House committee last week.

Bipartisan moves in Congress

For now, though, some influential forces in the US are focused on countering Trump administration policies. The US Chamber of Commerce has launched an advertising campaign opposing tariffs.

And bipartisan efforts in Congress could result in legislation designed to stop an escalation of trade conflict. Sens. Lamar Alexander (R) of Tennessee and Doug Jones (D) of Alabama plan to introduce a bill next week to prevent new tariffs on foreign cars and auto parts. Both states have seen workers gain from growing automotive production.

Senator Alexander said Wednesday that “nothing could do more to damage those family incomes than the proposed tariffs on imported automobiles and automotive parts, combined with the tariffs on imported steel and aluminum that the administration has already imposed.”

Meanwhile, another bill in the Senate would block the president from using a national-security rationale to impose new tariffs, unless Congress approves. This month the Senate also passed a nonbinding resolution, 88 to 11, implicitly questioning the administration’s tariff moves.

In polls, Americans show concern about trade conflict but also about China. About 73 percent of Americans, in a late June Quinnipiac University poll, said a trade war would be bad for the economy. But the same polling group, earlier in the month, found that by a 52-to-36 percent margin, Americans favored putting tariffs on Chinese imports.

“In the Congress there’s a sense that we need to do something with respect to China,” says Scott Paul, president of the Alliance for American Manufacturing, a partnership of manufacturers and the United Steelworkers union. But the levels of concern differ, he says, and lawmakers have taken few firm steps to tackle the issues, such as a glut of Chinese steel on world markets.

“If you don’t like the president’s plan, what’s the plan?” Mr. Paul wonders. “The mistake that Congress could make is pulling the rug from beneath the president’s feet before we see the chance for this strategy to play out.”

So far, it hasn’t played out in a pretty fashion. US talks have at various times faltered with both China and more traditional trade partners. The tally of expected tariffs and countertariffs keeps rising.

Some bending on steel

At the same time, negotiations aren’t over. And with the new US tariffs nudging it, Canada has announced efforts to curb transshipment of China-made steel, Paul notes.

This month, the European Commission has voiced interest in working with the US and others on WTO reforms, which might address America’s process-related concerns about the body that hears trade-case appeals.

“It represents a very promising start,” says Hillman at Georgetown, referring to the European overtures.

Frustrated with the WTO, the Trump administration has been blocking discussion of new appointments to the WTO’s appellate body, which currently has only 4 of 7 members in place, she says.

Trade experts don’t expect all issues to be resolved through the WTO, but they generally support efforts to preserve and use it as a global forum on trade. Hillman says the best hope of resolving disputes with China is for nations to join a broad-based WTO case against Beijing’s practices, going well beyond past cases in scope.

For now, though, Trump and his trade team haven’t appeared to set a clear path forward amid the smoke of tariff threats toward China and long-time allies alike. Not for coalition-building, at least. The hope appears to be that tariffs will make other nations buckle to US demands.

“It does not appear that there is any strategy to get at the long-term significant problems with China,” Hillman says.

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