Editor’s note: Professor Liu Baocheng is the Dean of the Center for International Business Ethics (CIBE) at the University of International Business and Economics. The article reflects the opinion of the author, and not necessarily the views of CGTN.
The smoke of a trade battle between the world’s two biggest economies lingers in the air, even though a year has passed since the change of power in the White House. China was recently awarded, by the arbitration body of the World Trade Organization (WTO), an annual right of retaliation against 645 million dollars of American exports on the basis of unfair countervailing duties of States States on Chinese products. The United States, however, called it “deeply disappointing” and said it reinforced the need for reform of WTO rules.
Yes, virtually all members have called for reform of the WTO, but with differing agendas and expectations. In the current circumstances, it is crucial that this mighty global trading system stays on the course of justice and efficiency, not capitulating to any hegemonic manipulation.
Strenuous efforts were made during the Uruguay Round of the Doha Agenda to exploit binding tariff reduction commitments among the 164 members of the WTO, which account for 98% of the value of world trade.
According to the rules and procedures of the WTO governing the settlement of disputes, if a member state does not comply with its agreement and no satisfactory compensation has been agreed between the parties to the dispute, it is entitled to request the authorization to the Dispute Settlement Body (DSB) to suspend the application to the member concerned of concessions or other obligations under the covered agreements.
The WTO provides sufficient time and opportunity for the accused to reconcile, correct, indemnify or refute the claim, and further states that “recourse to dispute settlement procedures shall not be construed or viewed as contentious acts and that, if a dispute arises, all Members will engage in such proceedings in good faith in an effort to resolve the dispute.”
Nonetheless, the Office of the United States Trade Representative (USTR) immediately responded with disappointment and accusation, saying the decision “reflects erroneous interpretations by the Appellate Body that undermine the ability of WTO members to defend our workers and our businesses against trade-distorting Chinese subsidies”.
Such an ad hominem attack on a global institution acting for the empowerment of all equal member states on the basis of an international collective agreement is a typical cognitive distraction, as if the WTO were a sub-agency of the American bureaucracy based in Geneva with the sole mission of serving the American national interest.
Ironically, in remarks at the Center for Strategic and International Studies (CSIS) in October 2021, USTR chief Katherine Tai, hand-picked by the Biden administration, boasted of such a triumph over China at the WTO: “We have brought 27 cases against China, including some that I myself have argued, and through collaboration with our allies. We have had victories in every case that has been decided. But that barred her from participating in the production of the 174-page World Trade Organization Appellate Body report, which accused the Appellate Body of engaging in ultra vires actions and obiter dictated. For a long time, the Appellate Body of the WTO has disappeared since the Trump administration refused to appoint new members.
A tariff is simply a duty levied by a sovereign on foreign imports. However, when a government claims that its objective is to offer a shield to national industry, it is widely denounced as an instrument of trade protectionism in a globalized world. It is a proven rationale that free trade drives efficiency and prosperity for all participants through the division of labor and the optimal use of all economic resources. This is why all proponents of free trade aim for the reduction and removal of all obstacles to the free flow of resources across national borders, among which a tariff is the most salient.
Harsh tariffs provoke retaliation from exporting countries. The Smoot-Hawley Tariff Act 1930 signed by President Herbert Hoover raised U.S. tariffs on more than 20,000 imported goods, but only served to hasten the Depression due to retaliation launched by its trading partners.
The world is becoming more resilient thanks to the globalized trading system based on the economic logic of comparative advantage. Chinese exports jumped 29.9% in 2021, hitting an all-time high of $3.36 trillion. Exports to the United States remain stubbornly high at 27.5%, even though punitive tariffs on $350 billion worth of Chinese goods have yet to be lifted.
Tariffs are an additional cost of doing business that is shared by all participants throughout the supply chain. Ultimately, it is the end consumers who are there to bear all the burden. The sole beneficiary is the US federal government, which is able to replenish its empty coffers and those warmongering politicians who are intent on rallying nationalism against an enemy at the expense of their own constituents.