Trade Wars in No One’s Interest | Sir Ronald Sanders


by Sir Ronald Sanders

WASHINGTON, United States, Wednesday April 11, 2018 – The government of the People’s Republic of China wrote to the chairperson of the Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) on April 4, registering a dispute with the government of United States (US) over duties that would be applied by the US only to China’s products.  The Chinese action was a response to the publication on April 3 of a list of products by the US that would attract an additional ad valorem duty of 25 per cent on entry into the US market. According to China’s submission, the US measures “appear to be inconsistent with the relevant provisions of WTO covered agreements”, including the General Agreement on Tariffs and Trade.

The first step in this DSB process is “consultation” between China and the US to determine whether the dispute could be settled by discussion between them. If the consultation fails, a long process follows of trying to agree on an arbitration panel, hearings by the panel and probably appeals against the panel’s decision if either of the parties find it unacceptable.

During all this time, the US duties on the Chinese goods would remain, harming their competitiveness in the US market and driving up the price of these goods to the US consumer.

The US Government claims that its decision to impose tariffs on Chinese goods comes after years of failed efforts by previous administrations to get Beijing to change its behaviour which unfairly advantages China’s goods and services.

While the Chinese government took the formal step of registering a trade dispute with the US over the proposed imposition of tariffs on its products, it also retaliated by announcing a list of US exports worth about $50 billion that it plans to target with a new set of duties. So, despite the WTO mechanism, set up specifically for settling trade disputes within an internationally agreed framework, the trade war between the US and China is escalating.

During his campaign for election, and since his assumption of office, US president Donald Trump has blamed unfair Chinese trade practices for the US trade deficit with China, which has now reached $375 billion. In response, the Chinese have contended that US fiscal policies and export controls are mostly to blame.

Several countries, mostly European, have also been saying that China’s trade practices are unfair, but none of them has gone as far as the US in unilaterally imposing tariffs that have provoked a tit-for-tat reaction from China. Even the Business Roundtable in the US has said that the US administration “should work with US allies on an approach that advances meaningful reform in China without imposing significant harm on America’s economy.”

Clearly, they recognize three things: First, the rise in costs of Chinese imports will push up the cost of living for the US as well as affect the viability of some US manufacturers who rely on less costly inputs available from China; second, US farmers will suffer from the retaliatory tariffs applied to their goods entering the Chinese market; and third, as Mark Zandi, chief economist at Moody’s Analytics, has pointed out, the US-China tariffs war could cost the US almost 190,000 jobs.

Eventually, both the US and Chinese economies will suffer. So, too will the rest of the world. For as these two giant economies decline, their capacity to serve as engines of growth for the global economy will also wane, causing an international slump. Small developing countries will be the first to feel the pain.

What is also significant about all this for small countries is that the WTO machinery is being sidelined. It is significant because as the WTO is shunted aside in favour of bilateral trade agreements with no international arbitration, small countries will be disadvantaged in trade negotiations with more powerful nations and they will have no independent machinery to which to appeal in the event of a dispute.

African, Caribbean and Pacific (ACP) countries have already suffered from agreeing a so-called Economic Partnership Agreement (EPA) with the 28 European Union (EU) countries outside of WTO agreements. The result is that EU countries gained much more than the limits set by the WTO and the ACP countries have to resort to an independent, international mechanism for arbitrating disputes.

Alongside the US-China trade war, the other trade issue that should be of concern to Caribbean states is the future of the North American Free Trade Agreement (NAFTA) between the US, China and Mexico.  At the insistence of the US, discussions have been ongoing between these three countries to change the terms of the agreement. Each of the three countries is a trading partner of the Caribbean, although the Caribbean has a greater interest in the prosperity of the US and Canadian economies, given that they are primary sources of tourism and remittances as well as markets for Caribbean goods.

An important aspect of the NAFTA discussions has been arbitration of disputes. The US favours bilateral discussion instead of the present mechanism of an impartial tribunal. But, as small countries, such as Antigua and Barbuda, have learned to their detriment, they cannot hope for justice in a bilateral negotiation with a powerful country like the US whose agents can choose not to honour obligations, and even not to negotiate.

The WTO system is imperfect. It cannot enforce judgments arising from a trade dispute, but it can provide impartial hearing and judgment. And, as imperfect as it is in enforcing judgments, it is far better than leaving small states to the mercy, or lack of it, of the powerful.

Trade wars, such as the ones the world now witnesses, create instability and decline. Meaningful discussion of unfair trade practices in a global framework, where culprits are made to change their behaviour by the weight of collective international negotiation and agreement, is far more constructive.

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Sir Ronald Sanders is Antigua and Barbuda’s Ambassador to the US and the OAS.  He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and Massey College in the University of Toronto.