Tariff war threatens world trading system

https://youtu.be/BCu1Mt9GWT8 https://youtu.be/BheswegaOKk

TODAY marks another milestone in the escalating global trade war that threatens to shake the foundations of the world trading system and cause economic uncertainty at a time of financial fragility. It’s an altogether bad development that adds more gloom to global economic prospects.

Last week, the United States announced it would slap an additional 10% tariff on US$200bil worth of imports from China. Hours later, China said it would put 5% to 10% extra tariffs on US$60bil of imports from the US.

Both sets of tariff increases come into effect today. But that’s not all.

The US also said it would raise the extra tariffs on the US$200bil of imports from 10% now to 25% at the end of the year. And if China retaliates (which it now has), the US might slap higher tariffs on yet another US$267bil of Chinese imports.

This comes on top of tariffs on an initial US$50bil worth of imports that the US had placed on Chinese imports a few months ago, and equivalent tariffs on US$50bil on US imports that China imposed as retaliation.

And even before that, the US had put extra tariffs on steel and aluminium imports from all countries, except a few that were exempted for the time being.

The US is also threatening to put tariffs on imported auto vehicles and parts, including those from Europe. That is on hold because of a bilateral deal reached, but could be re-ignited if President Donald Trump is not satisfied with Euro­pean behaviour.

The US itself is experiencing negative effects of this trade war. The prices of the initial US$50bil of imported Chinese products have started to go up in the US, raising costs for both consumers and producers.

The Chinese are similarly affected. Exports of both countries are also bound to decline, and this will eventually affect their overall economic growth.

There will be collateral effects on other countries. In Asia, those that are integrated in the global supply chain will find less demand for their exports of components to China. The effect on Malaysia is projected by analysts to be around 0.4 to 0.7 percentage point of GNP in 2019.

This could be offset by positive effects. Some companies producing in China are considering relocating to other countries, including Malaysia, to escape the US’ punitive tariffs. And some Malaysian products may become cheaper than Chinese products, which will now attract extra duties.

But it is likely that the bad effects will outweigh any such good effects, at least in the short run.

It is clear that the US is to blame for the trade war. Its unilateral actions are against the spirit and rules of the trading system, and have in fact undermined its legitimacy and viability.

The steel and aluminium tariffs were imposed under the US security clause of its domestic trade law, while the other tariff increases are under Section 301 of the trade law. The US actions are against various World Trade Organisation (WTO) rules.

Challenges to the US unilateral measures have been taken by China and other countries at the WTO. If the US is found in violation, which is quite likely, it has to stop its actions or face retaliation: the countries that win the cases heard by the WTO panels of experts are allowed to impose equivalent tariffs on US products.

However, the US has engineered a crisis in the WTO’s dispute settlement system so that soon the outcome of successful cases against it cannot be implemented.

This is because the US is now paralysing the WTO’s Appellate Body by refusing to allow new members of the body to be appointed to replace those retiring. Soon there will be only three members left, out of a full body of seven. Two more will be retiring in January 2019. A minimum of three members is needed to sit on a case.

Thus, if a lower-level panel rules against the US’ unilateral actions, and the US lodges an appeal that cannot be heard because there are not enough appellate body members, the panel decision cannot be enforced.

This would make the WTO quite a toothless organisation. There would be no legal remedy to enforce penalties for breaking the WTO laws. Countries that impose unilateral tariff increases can get away with it. In turn, other countries would also do the same.

The rules-based trade system is already starting to break down. We are now seeing blatant protectionism by the US and retaliation by affected countries. Within months, the trade war could spread, with the law of the jungle becoming more prominent.

Tears will not be shed in the developing countries if some rules cannot be upheld anymore, such as the WTO’s TRIPS agreement on intellectual property. The free trade economist Jagdish Bhagwati has said the TRIPS treaty does not belong in the WTO.

But what all members like about the WTO is its role in ensuring the predictability that their exports can sell in the markets of its members, with tariffs at rates agreed to at the WTO.

If that predictability is lost, then there can be a lot of uncertainty, as one country after another can unilaterally impose extra tariffs on other countries, which may then trigger retaliation.

This breakdown of the trading system may be the more serious effect of what started as a US-initiated trade war.

Trump may not care what happens to the system, as he has said many times that the WTO is a terrible organisation that the US should leave. And his recent actions, in fact, seem calculated to undermine, if not destroy it.

It is a new world we are looking at, in a scenario that would not have appeared possible a year or even months ago.

Policy makers, companies, analysts and the public should ponder about this, even as they follow the details of the tit-for-tat trade war that the US is waging against China and other countries.

Martin Khor is adviser of the Third World Network. The views expressed here are entirely his own.

Credit: Global Trend by Martin Khor


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We also hope that the Chinese public gets to know the causes and effects of the event and the steadiness of the Chinese government's policies. No matter how long China-US trade conflicts last, China is doing what it should. China is honest and principled and a major trade power with intensive strengths. No one can take us down.

US hysterical in blocking sci-tech exchanges

The US is anxious about its temporary gains and losses. One minute it wants Sino-US exchanges, but the next it worries China is taking advantage. Its relevant policies are bound to change all the time. Its latest decision is like the trade war. Washington's purpose is to drag Beijing down, but it will mostly hurt itself.

 

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Free trade in rhetoric, not in practice by Western countries

WESTERN countries commonly proclaim the great benefits of free trade and the evils of protectionism.

Globalization Of Trade Without Globalization Of Law Results In Plutocratization. This Is Exactly What Happened To The Roman Republic, & Why It Faltered

In reality, many developed countries practise double standards, insisting on free trade in areas where they are strong, whilst using protectionist measures in sectors where they are weak.

In the worst case, within the same sector they have designed rules that impose liberalisation on developing countries but allow themselves to maintain high protectionism.

An outstanding example is in agriculture, in which the rich counties are not competitive.

If “free trade” were to be practised, a large part of global agricultural trade would be dominated by the more efficient developing countries.

But until today, agricultural trade is dominated instead by the major developed countries.

For many decades they got an exemption for agriculture from trade liberalisation rules.

This exemption ended when the World Trade Organisation (WTO) was crea­ted in 1995 and the rich countries were expected to open their agriculture to global competition.

But in reality, WTO’s agriculture agreement allowed them to have both high tariffs and high subsidies.

The subsidies have enabled far­mers to sell their products at low prices, often below production cost, yet allowed them to get adequate revenues (which include the subsidies) that keep them in business.

This has four negative effects on developing countries.

Firstly, those countries that are agri­­culturally competitive cannot pe­­netrate the rich countries’ markets.

Secondly, the developing countries are deprived of other markets because the United States and Europe can export the same farm products at artificially cheap prices. This is a complaint of African cotton-producing countries.

Thirdly, by exporting a product cheaply, the developed country reduces the demand for a competitor substitute product. If the US did not subsidise its soybean, enabling soybean oil to be cheaper, Malaysian or Indonesian palm oil would have a bigger market.

Fourthly, these cheap products (such as chicken from US and Europe) have entered many deve­loping countries, damaging the livelihoods of their local farmers.

In 2001, the WTO launched a Doha development agenda whose chief goal was to liberalise the agriculture of developed countries.

Much energy was spent over many years to devise methods and formulae to liberalise agricultural trade, and a high degree of consensus was reached.

However, the US, backed by Europe, has now made it clear they do not intend to conclude the Doha Round.

Future WTO negotiations have to be on a new basis, and not based on existing texts.

An article by Chris Horseman in the bulletin Agra Europe (May 12) analysed why the US now cannot accept the existing text.

A reduction in the maximum limit of one type of allowed subsidies (called de minimis) would have pushed the US to increase by 58% another type of disallowed subsidies (known as AMS).

This partly explains “why the US is keen to move away from the formulae on the table and to negotiate a fresh approach,” said the article.

Due to its powerful farm lobbies, the US will not change its domestic policies (embodied in its 2014 Farm Bill) to meet the Doha agenda’s new limits on the allowed amounts of domestic subsidies.

The same article also shows how the European Union has meanwhile changed the types of subsidies it provides, in order to better comply with WTO rules. This also allowed the EU countries to maintain their total domestic subsidies at around €80bil (RM356bil) annually from 2004 to 2013.

Two decades after the WTO was set up, the rich countries have continued the high level of their agricultural protection.

There is little prospect that they will agree to changes in the trading system that will effectively eliminate or reduce the massive subsidies that keep their farming systems afloat.

The poorer countries simply do not have the money to match the subsidies of the rich.

If they want to defend their far­mers and their food security, they can only put up tariffs to levels that keep out the cheap subsidised pro­ducts.

But those developing countries that sign free trade agreements with the US and the EU have to cut their agriculture tariffs to zero or very low levels.

At the same time, at the insistence of developed countries, agricultural subsidies are kept off the FTA agenda. Thus, the rich countries can keep their subsidies and swamp developing countries with their farm products.

The US and EU are also taking protectionist measures in other areas against developing countries.

For example, the US successfully filed a case against India at the WTO, that the latter’s National Solar Mission favours local firms through its domestic content requirements for solar cells and modules.

This kind of objection makes it extra difficult for India or other developing countries to take action against climate change.

The European Parliament recently voted to refuse giving China the status of a market economy in the WTO, although WTO members are obliged to recognise China as a market economy by December 2016, 15 years after it joined the WTO in 2001.

By denying China this status, it is easier for other countries to suc­­­­­­c­e­ed when taking anti-dumping cases against China, and thus to place extra tariffs on Chinese exports.

China and India are fighting back.

India last week announced it will file 16 cases against the US for violating WTO rules when providing subsidies under its renewable energy programmes.

China won a case against the US in the WTO for wrongly imposing countervailing duties against 15 Chinese products including solar panels, steel sinks and thermal paper.

However, the US has not complied with the panel decision to withdraw the duties, and China is now starting action at the WTO to get the US to comply.

It seems impossible to prevent or reduce the rich countries’ high protection of their agriculture. And it also seems they will continue using protectionist measures against products or policies of developing countries.

There is indeed a big gap between the rhetoric and practice of free trade.

By Martin Khor Global trends

Martin Khor (director@ southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.

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US: an engine or a threat to the world economy? Unwise to write shortsighted rules!

Is the US an engine or a threat to the world economy?

According to the World Economic Outlook published by the World Bank, the international economy is forecast to grow by 3 percent in 2015 and 3.3 percent in 2016. The US and the UK will maintain their economy recovery while Japan and the eurozone will remain sluggish, with growth forecast at no more than 1.1 percent. The World Bank also predicted that the US economy will grow by 3.2 percent in 2015. Developing countries are facing lots of challenges in its economic development.

The US seems to be the only engine of the world economy. But the US Federal Reserve is likely to raise its interest rate from 0 to 0.25 percent. The World Bank worries that any such move will make it more difficult for emerging economies to raise money. The US has emerged from its financial crisis while other countries are still trapped in economic troubles. From this perspective it is hard to assess whether the US is an engine or a threat to the world economy.

There is still a worry that Greece will exit the eurozone. If this happens, the eurozone will be thrown into turmoil. In Japan, so-called "Abenomics" have failed to generate the anticipated results. Russia and Venezuela are each facing their own troubles and threats.

The US economy is closely linked to the whole. Only when other economies achieve sound development, can the US economy maintain sustainable development. The US can't just focus on its own development.

This article was edited and translated from 《美国是引擎还是威胁？》, source: People's Daily Overseas Edition, Author: Zhang Hong

It is unwise for the U.S. to write shortsighted rules

In the latest State of the Union Address, President Barack Obama mentioned China many times. He claimed that China wants to write the rules for the world's fastest-growing region (Asia-Pacific) but the U.S. should write those rules. He went on to urge Congress to give him the authority to promote trade with this region.

Obama is setting considerable store by the Trans-Pacific Strategic Economic Partnership (TPP) Agreement (TPP) and Transatlantic Trade and Investment Partnership (TTIP). These trans-regional trade and investment agreements are designed to increase America's competitiveness and encourage its exports. Although Obama's government has tried hard to promote these agreements and to make his mark on presidential history in the U.S., parts of the bills of the two agreements are opposed by some of the negotiation partners, and it is not clear whether Congress will support the agreements.

The U.S. is avoiding queries over its strategic rebalancing toward the Asia-Pacific. The American government cannot give a clear answer to whether TPP targets any specific country. However Obama has now made his position clear: "We should write those rules. We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but fair."

It is readily apparent that America is not satisfied with international trade rules set by the World Trade Organization (WTO). Some countries are trying to break rules while China is attempting to set rules for the world's fastest-growing region. However, China's efforts could undermine American interests. Obama hold the view that China is taking advantages of existing free trade rules and it is not fair to the U.S.

It is not wrong for America to benefit from reform of international trade rules. But from a country good at promoting global rules in the past to one now busy promoting trans-regional rules between Asia and Europe, America's leadership in international system gradually fades out. The U.S. thinks that it has suffered losses from past world trade rules and therefore wants to establish new trans-regional institutions that exclude China and other counties.

America is no longer a country positively promoting global financial trade rules. It now seems to be focused on short-term rules to suit itself and a few allies. Although these agreements will co-exist with the WTO, world trade may become more fragmentized due to trans-regional agreements. A conflict of interests is slowly developing between a group of developed countries, including America, and the developing countries. Trade interests between developing countries might also be damaged. In view of this situation, it is hard to say that the world will be freer or fairer.

Are the trade rules established by WTO really unfair? The U.S. thinks that the standards involving environmental protection, intellectual property protection, and markets are too low. However, America should always bear in mind that it too encountered these problems during its industrialization. Progress was achieved only after a long period. If America remains reluctant to cooperate with other countries to define international rules, it might lose international respect and miss out on new opportunities for development.

The article is edited and translated from 《美国切莫制定短视规则（望海楼）》, source: People's Daily Overseas Edition, author: Shen Dingli, Vice Dean and professor of Institute of International Studies, Fudan University

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WTO rules U.S. unfair subsidies for Boeing illegal

The U.S. is hailing a World Trade Organization ruling on illegal Boeing subsidies as a victory. (Roslan Rahman/AFP Reuters

The World Trade Organization has ruled that U.S. aircraft manufacturer Boeing received $3 billion to $4 billion in illegal subsidies in the form of federal research grants and local tax breaks, the top U.S. trade official said Monday.

But U.S. Trade Representative Ron Kirk called the decision "a tremendous victory" for the United States because he said a separate WTO panel ruled last year that European governments provided $18 billion in subsidized funding for Airbus.

"It is now clear that European subsidies to Airbus are far larger -- by multiples -- and far more distortive than anything that the United States does for Boeing," Kirk said in a statement.

"The United States is ready to address all of the WTO findings, and we expect Europe to do the same. Airbus is a mature, highly capable company with ready access to commercial financing. It doesn't need the launch aid that European governments are continuing to provide," he added.

The WTO appellate body ruling on Monday faulted the United States for research funded by NASA and the Department of Defense that benefited Boeing and for tax breaks granted by the state of Washington and city of Wichita, Kansas.

The United States will have six months to comply with the ruling, once it is formally adopted this month, Kirk said.  

Washington seeks to extend hegemony to trade

(Global Times)

US President Barack Obama signed an order Tuesday to create an interdepartmental task force to enforce trade agreements. Some commented that it is directly targeting "unfair trade practices" by its major trade partner China. On the same day, the Information Technology & Innovation Foundation, a Washington think tank, issued a report entitled Enough is Enough: Confronting Chinese Innovation Mercantilism. 

It accused Beijing of using various tricks like subsidies or export restrictions to gain an "absolute advantage" for its companies and urged Washington to "build a global free-trade coalition" with allies to push back against China.

The US has not made such endeavors before. China is facing serious trade frictions. The US deemed that their manufacturing industry is most effective, and "unfair trade practices" are an easy target.

US politicians have repeatedly instilled voters with such information: China is challenging the global trade rule with "national capitalism," and the US must strike back.

Actually, the US is challenging and damaging the rule. Perhaps Washington feels the WTO has become less and less helpful and it has to create a new alternative. The US government now integrates resources and attempts to deal a severe blow to "unfair trade practices" at any time.

However, no matter how strong the US is, it cannot expand and impose its will to a world which will not accept a trade power overriding the WTO. If anyone can freely create an enforcement unit to pursue personal interests, where can world trade order be found?

The world's largest importer cannot seek limitless power, especially since China is only years away from becoming the top importer itself.

This year will see presidential elections in the US and politicians are scoring cheap points on the back of foreign countries. The Democratic Party and Republican Party can always find unity against China.

China has to be clear. China's annual exports to the US were $320 billion last year, but US sanctions against Chinese exports were at no more than $10 billion. The US will not risk a major showdown.

Due to strategic mistrust, mutual precautions are increasing and the risks of politicalizing future trade frictions are intensifying.

US politicians like to exaggerate matters. China should ignore this, stick to WTO rules in the trade lawsuit against the US and protect the interests of Chinese companies.

We should not be intimidated by this so-called enforcement office. The US is not in a position to assess China's trade system. Only the WTO is qualified to assess and WTO Director-general Pascal Lamy has given an A+ to China's performance since its accession.

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China bashing not the solution !

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GLOBAL TRENDS By MARTIN KHOR

The US Senate is scheduled to vote this week on a “currency Bill” to allow actions against China’s imports. But blaming China may unleash a trade war without solving America’s problems.

IS China’s currency and trade performance a threat to the United States? Or are American politicians using China as a scapegoat for the country’s economic problems?

“China bashing” has been on the rise in the United States. It is widely thought that politicians of both parties are doing it to gain popularity in view of the coming elections.

For some years, Congress members have threatened to take action against Chinese imports to retaliate against what they see as China’s manipulation of its currency level.

The politicians say that the Chinese yuan is lower than what it should be if there were no government intervention.

They charge that the undervalued currency enables China to have a large trade surplus vis-a-vis the United States, and that this has caused the loss of American jobs.

These charges are refuted by the Chinese government, which argues that the US trade deficit is due to domestic factors and not Chinese policy. It also points to the 7% appreciation of the yuan versus the dollar in recent months.

This issue has been a central economic policy issue between the two major countries. It could escalate into a major battle on the ground.

The US Senate is scheduled to vote tomorrow on a Bill aimed at enabling import tariffs to be placed on Chinese imports as a retaliation against the alleged currency manipulation.

In a first step, the Senate on Oct 3 voted 79-19 to allow a week-long debate on the Currency Exchange Rate Oversight Reform Act of 2011. The Bill mandates a process for imposing tariffs on imports of a country with allegedly “misaligned currencies”.

Though China is not named, it is obviously the target. The Bill would in effect require the US Treasury Department to determine if China was manipulating the yuan. If it finds this to be the case, extra tariffs can be placed on some imported Chinese goods.



The Bill is expected to pass in the Senate. But a similar Bill has to also go through the House of Representatives, and be approved by US President Barack Obama, before trade measures can be taken.

These two steps are far from assured. Although it seems the majority of the House are in favour, Speaker John Boehner said last week it was dangerous to be moving legislation through Congress to force “someone to deal with the value of their currency ... while I’ve got concerns about how the Chinese have dealt with their currency, I’m not sure this is the way to fix it”.

Obama last Thursday accused China of “gaming” the trade system to the disadvantage of other countries, especially the United States. But he also expressed concern that the Senate Bill “may not actually work … as it may be only ‘symbolic’, and would probably not be upheld by the World Trade Organisation (WTO)”.

Nevertheless, the probability of the passage of the Senate Bill has heightened US-China tensions and raised the potential of a serious trade war.

As could be expected, Chinese government agencies and think tanks are reacting strongly to what they perceive as a protectionist move.

The People’s Bank of China (its central bank) said the Senate Bill would not help resolve the United States’ domestic issues such as the trade deficit, low level of savings and high unemployment, but could potentially affect the economy and market confidence.

It added: “The passage of the Bill may seriously affect China’s currency reforms, potentially leading to a trade war between the two sides.”

Xu Mingqi, deputy director of the Institute of the World Economy at the Shanghai Academy of Social Sciences, had this to say: “It is easy for the US to make China a scapegoat of its domestic problems at a time when its economy remains weak with a high unemployment rate and the next general election only 13 months away.”

In the event the Senate Bill makes its way into actual law, a dispute case will most likely be taken against the United States at the WTO.

WTO rules do not allow countries to impose punitive duties on the basis that a certain country’s currency is undervalued. That this is so is appropriate. Valuing currencies to see if they are “manipulated” is very complex and difficult.

For example, the United States has also been accused of pushing its currency down through its controversial policy of “quantitative easing” (central bank pumping of funds into the banking system).

And is Switzerland “manipulating” its currency by announcing it will not tolerate further appreciation of the franc?

Allowing the currency issue to be a subject of possible unfair practice open to trade sanctions will open the road to many other issues being similarly recognised, such as a country’s tax rates, interest rates, and labour and environmental standards. There will be no end to having reasons for new trade protectionism.

A US law based on the Senate Bill will probably be found to be inconsistent with US obligations in the WTO. But by the time the WTO dispute system panel makes a final ruling (this may take years), some damage may already be done should the United States act against Chinese imports in the meantime.

China may not take the US actions lying down, and can come up with retaliatory action on US goods. Thus, a trade war may be unleashed.

Interestingly, although some well known American economists like Paul Krugman and Fred Bergsten advocate US action against Chinese imports, some business associations as well as important newspapers like the New York Times, Wall Street Journal and Financial Times have come out strongly against the Senate Bill for its protectionism and trade war potential.

The high-pitched attack on China because of its large trade surplus with the United States is misplaced. Little of the gross surplus actually accrues to China.

A 2010 paper by the South Centre shows that only a small part of China’s exports to the United States is actually retained as income in China.

For example, in 2005, China’s gross trade surplus with the United States was US$172bil (RM543bil), but in value-added terms (what is earned by the respective countries after deducting the import content of their exports), it was only US$40bil (RM126bil).

Further, a large part of the Chinese trade surplus in value-added terms was earned by foreign firms in China and thus, does not belong to China. As a result, income left in China was no more than 30% of the total value of exports to the United States.

Therefore, the criticism that China enjoys extraordinarily high trade surpluses with the United States is misplaced.

Also, even if US trade measures reduce Chinese imports into the United States, this does not mean that the US import bill will be reduced.

Goods from other developing countries such as Vietnam or Indonesia may just replace the Chinese goods.

Therefore, US actions based on the Senate Bill would hardly help the United States get rid of its trade deficit.

It is best that the United States take domestic actions to address its domestic economic problems, rather than make a scapegoat of other countries and potentially unleash new trade wars.