On Dec. 1, the United States formally informed the World Trade Organization that it opposes granting China market economy status. This breaches its promise that China would automatically be granted market economy status by 2016.
According to that promise, since China joined the WTO in 2001, it should have been granted the market economy status by the end of 2016, the same treatment that is enjoyed by more than 160 member economies. It has long been clear that trade and economic relations between the U.S. and China will not develop smoothly during the U.S. presidency of Donald Trump.
This was reinforced during his recent trip to Asia, when he failed to express his support for the world trade system. On the contrary, in speech after speech, Trump denounced the WTO and the multilateral trade and investment arrangements that the U.S. established following World War II to regulate conflicts among economic competitors.
The WTO is the global trading body that administers the rules that govern cross-border commerce and presides over negotiations aimed at further trade liberalization. But Trump sees the rulings of a Geneva-based group of experts as an infringement upon U.S. authority. During his Asia trip, Trump categorically vowed to "aggressively defend American sovereignty over trade policy", pursue an uncompromising "America First" agenda that requires every country to substantially reduce its trade surpluses with the U.S..
When the U.S. opens up its own markets, other countries tend to do the same. If the U.S. were to embrace protectionism, other countries would follow suit. If Trump discards the WTO before he finishes bilateral trade facilitation agreements, it would be a disaster for the U.S. internationally. There are no bilateral free-trade agreements between the U.S. and seven of its top 10 trade partners. When the U.S. leaves the WTO, it will find that it is totally isolated and trapped among trade barriers and disputes that the WTO is striving to eliminate and mediate.
What is anticipated now is a U.S. attack on the global trading system. China believes such a move will come soon.
As a prelude, on Nov 28, the U.S. Commerce Department launched anti-dumping and anti-subsidy investigations into Chinese alloy aluminum sheet imports, the first time such investigations have been initiated by the government in decades.
As to why the U.S. refuses to grant China the market economy status, there are two interpretations: First, the U.S. wants to use it as a tool to combat Chinese companies, since not granting China market economy status would allow Washington to maintain high anti-dumping duties on Chinese goods, which would put the viability of some Chinese industries at risk.
Second, the U.S. wants to form a coalition with the European Union against China. WTO hearings of China's "non-market economy" dispute with the EU is around the corner, and a statement of the U.S.' opposition to granting China market economy status was submitted as a third-party brief in support of the EU' s case.
Obviously, the U.S. and the EU are blind to the great achievements in reform that China has made since joining the WTO. Now the prices and costs in China are determined under market economy conditions. At the 19th National Congress of the Communist Party of China it was decided to let the market play the decisive role in the allocation of resources.
China will negotiate a solution with the U.S. and the EU, but it will be very difficult, considering the complexity of market economy status. Meanwhile, China will continue to file complaints to the WTO. Whether the WTO will respond positively and draw an objective conclusion is sure to influence its credibility.
The author,Yu Xiang, is a research fellow and director of the Division of American Economic Studies at the Institute of American Studies, China Institutes of Contemporary International Relations.