On November 12, the United States, European Union, and Japan will submit a package of proposals to the World Trade Organization’s Council on Trade in Goods that would significantly help curb China’s practices of heavily subsidizing its state-owned enterprises. They are also discussing ways to prevent China from forcing Western companies to transfer technology to Chinese firms. Hopefully, the Trump administration’s threat to escalate the tariffs war with China will persuade China to accept such reforms.
Subsidies. China announced it planned to provide $350 billion in subsidies to 10 key industries of the future such as robotics, electric vehicles and EV batteries, advance computers, and mobile devices under its ‘Made in China 2025’ policy. (Unlike economy-wide supports such as an R&D tax credit, WTO rules prohibit subsidies to specific companies because of the competitive advantage they confer.) But under WTO rules, no country can obtain any remedy such as duties
The European Union’s recent announcement that it is preparing to retaliate if the Trump administration imposes tariffs on EU-made autos leaves no doubt that EU-U.S. cooperation on global trade will be compromised for some time if the tariffs go into effect. Besides whatever damage the conflict could do to U.S. jobs, industry, and consumers, this conflict will jeopardize essential allied collaboration to confront Chinese state capitalism, the underlying cause of much of the current trade conflict. When EU President Jean-Claude Juncker visits Washington on July 25, the administration should use the visit to find ways to step back from this precipice.
The primary tool of China’s industrial policy is subsidies to state-owned enterprises (SOEs) for key industries such as robotics, advanced computers, and electric vehicles. SOEs receive preferential access to land, finance, telecom, hydrocarbons, and electricity. They enjoy lower taxes and selective anti-trust enforcement to
As is the case on so many issues, President Trump has been all over the map on trade. While he took a hardline protectionist stance during the presidential campaign and for much of his first year in office, he and several of officials of his administration have signaled in recent months that they were rethinking their hostility toward multilateral approaches to trade problems. But Trump’s recent declaration that he plans to impose steep tariffs on the imports of steel and aluminum, coupled with this week’s announcement by Gary Cohn, the president’s chief economic adviser and a free trader, that he’s quitting, suggest that Trump’s protectionist side is dominating once again.
In my estimation, this is a reason for concern because tariffs and protectionism in general won’t do anything to address a major underlying cause of distortions in global trade: the subsides of China and other countries for
The Trump Administration has a chance to start working with 164 other countries to create “rules of the road” to stop China building national champions with government funding. Such state-owned enterprises or state-supported industries (SOEs) — think steel, aluminum and solar panels — have flooded global markets, depressed prices, and literally shut down hundreds of U.S. solar-panel startups.
Trade ministers of the World Trade Organization (WTO) will meet December 11-13 in Buenos Aires for their eleventh conference to review progress and set the agenda for global trade negotiations. The United States will ask the 163 other Member nations to begin talks on new “transparency” provisions — targeted at China but applicable to all members — that are intended to shed light on the murky business of government subsidies. Existing WTO rules require all members to notify the WTO when they establish subsidies that favor domestic industries (e.g., loans