December 21, 2017

Will Trump Kill a World-Trade Santa Claus?

Bruce Yandle

Distinguished Adjunct Fellow

With considerable fanfare, President Trump on Monday unveiled his administration’s much-anticipated national security strategy giving expanded and more concrete meaning to his “America First” campaign slogan. Arguing that China and Russia are U.S. competitors for power on the world stage, the policy statement emphasizes the administration’s desire to balance the books when America engages in trade with any country.

The old notion that flows of trade and payments should balance — that an imbalance in trade with China, for example, may be offset by a new Volvo assembly plant built with Chinese dollars in South Carolina — is no longer relevant. Instead, reciprocity — if we buy this much from you, you should buy the same from us — has become the Trump administration’s golden rule.

While pundits were discussing the new Trump doctrine, a different group of government agents had just concluded something that is perhaps more relevant: World Trade Organization talks in Buenos Aires, including debates on China’s status.

In November, the United States initiated a WTO action against China related to an “anti-dumping” complaint. It came in the wake of expanding Chinese shipments of aluminum foil and alleged that the commodity was being sold here below production cost. When proved, this is called dumping, and can result in the imposition of tariffs and penalties.

Indeed, in just five years between June 2012 and June 2017, the United States filed 36 anti-dumping cases against China. The diversity of products includes potassium phosphate salts, coated paper, wind towers, light truck tires, roller bearings, and tool chests and cabinets. China, it seems, has been a virtual Santa Claus to U.S. buyers, and not just for good girls and boys.

Of course, Adam Smith and his tribe would hardly care about dumping at all. They celebrate when producers elsewhere happily sell goods to others at bargain prices. Even if producers want to simply give their products to us, who are we to say no? After all, who doesn’t like Santa Claus?

But those whose domestic employment and dividend checks depend on keeping plants here at home operating in the black see things quite differently. This is understandable — we all look out for own interests — but what’s good for one business or industry isn’t necessarily what’s good for an entire country. It’s this group’s politics that inspire anti-dumping proceedings against other countries.

The debate in Argentina was not so much about dumping charges per se, but about China’s WTO status. When China joined the WTO 16 years ago, the country, due to significant state ownership of enterprises and resources, did not receive a much-desired “market economy” designation. Lacking this designation means that China cannot easily defend itself against dumping charges.

After all, when an economy is centrally planned and operated, the forces of supply and demand are relegated to the basement and costs and prices can be set to suit the situation. Now, it seems that China, having made some structural changes in the economy, is calling for market economy designation.

If obtained, the new designation could unwind lots of pending anti-dumping actions. U.S. negotiators as well as those from France, Germany, and Japan said no to China’s request and would not budge on the matter.

In the midst of all this, however, the EU argued that no country is really a pure market economy, and therefore no country should be protected by a market economy designation. Instead, all countries should be put on notice that when charged with trade violations, the countries involved will just have to provide their best possible defense. None should be given the benefit of the doubt, whether China or the United States.

Will Trump’s statement and WTO action help Santa pack a larger sleigh or not? And would this help or hurt America? Stay tuned. There are too many moving parts to the story to say.