TRADE WITH CHINA

At Least Somebody’s Listening (If Only It Were U.S. Policymakers)


Today’s Wall Street Journal reports (sub. req.) that the European Union is considering implementing a change that I have long advocated the United States implement: graduating China to market economy status for purposes of antidumping proceedings. Among the reasons given in the article for the prospective change is that doing so might make it easier for Europe to “extract a range of concessions” from the Chinese on other issues deemed crucial to the trade relationship.

Though they have been stubbornly resistant, U.S. policymakers should be doing the same thing for the same reasons. When we hear about the issues that define the U.S.-China trade relationship, those issues read like a litany of U.S. gripes. The Chinese should: stop subsidizing industry; stop manipulating the currency; stop engaging in unfair labor practices; stop dumping; stop stealing intellectual property; stop imposing behind-the-border barriers; start opening services markets; start allowing uninhibited foreign ownership, start being a responsible stakeholder, and on and on. (The presumption being that fulfillment of American objectives is the chief aim of Chinese policy.)

Can you name a single Chinese demand of the United States? Well, there are several, but none of them are really “demands.” They are requests, pursued diplomatically through ongoing dialogue and without a lot of political grandstanding. The single most important wish of the Chinese on the trade front is that they be given market economy status. More than anything else, I believe, China’s interest in achieving that status is driven by a desire to be treated respectfully by the international community. The non-market economy label carries a Cold War stigma and, in any event, is misapplied in the case of China, where the economy is increasingly market-oriented, if not market-based, by most metrics.

Under current European and American antidumping practices, China’s NME status means its rates of duty are not based on a comparison of prices. Instead, they are based on a comparison of the Chinese company’s export prices to a fictitious guestimate of what the price would be in China if prices were in fact determined by market forces. Got it? Right! NME rates tend to be higher than ME rates, but in any event are totally divorced from commercial reality.

Graduating China to ME status does not mean that Chinese exporters would be immune from antidumping allegations and actions by U.S. industries. No, they would still be subject to a law that routinely produces high, and sometime prohibitive, tariffs. But graduating China to that more respectable status would engender much good will and would likely inspire greater willingness among the Chinese to work with U.S. negotiators to resolve outstanding differences.

Ironically, the U.S. interests that are opposed to changing China’s status are the same interests that endorse the litany of gripes against China. Eventually, they may smarten up like their European brethren and do the right thing.