15.12.2017 Author: Vladimir Terehov

Trade Wars: United States Cupports EU Over China


The ink of the signatures at the bottom of several bilateral agreements on economic cooperation for an impressive amount over USD 250 billion concluded during a recent visit to China by U.S. President D. Trump had barely dried, when another coolness came in relations between the two leading world powers.

On 1 December, the United States expressed their disagreement to granting China a market economy status (MES) at the WTO. Washington was supportive of EU, which, using China’s lack of MES (and strongly resisting Beijing’s attempts to attain it), imposes duties on various Chinese imports with its own (“surrogate”) assessment of their “true, anti-dumping” value. This bears the features of protective measures undertaken to save their own industry from competition from cheap Chinese products. To date, the EU trade deficit with China is $200 billion with a total volume of about $600 billion.

The question of the extent to which the abovementioned assessment is fair and consistent with WTO rules is the subject of extensive (and so far fruitless) discussion between EU and Chinese experts. We shall only note that China’s lack of MES, under which it is obliged to have restructured its economy within 15 years of WTO accession (i.e. by the end of 2016), very much simplifies for Europeans their contention with a rapidly growing global level economic competitor.

And now, on the basis of the very same arguments of “self-defence”, the American administration, head of which has declared huge trade deficit (about $350 billion) with China as one of the country’s main foreign policy issues during the election campaign, has come out against granting the MES to Chin.

China, as anticipated, reacted negatively to the decision of the United States. An official representative from the Ministry of Commerce expressed “strong disagreement” with Washington’s refusal to facilitate China’s receiving MES.

In Beijing it was asserted that this is not the only unfriendly step taken by the United States almost immediately after the U.S. President’s apparently successful visit to China, pointing to the most recent annual report of the U.S.-China Economic and Security Review Commission, published on November 15. The document notably covers what Beijing considers to be extremely sensitive topics such as the shape of its control of Hong Kong (returned to Chinese jurisdiction in 1997 from the United Kingdom) and the problem of Taiwan’s political status. Regarding Hong Kong, the report recommended strengthening a 1992 law, whereby the sphere of economic and trade relations after 1997 is considered as “separate from China”. It also recommends resuming joint military exercises with Taiwan.

In Beijing, the authors’ proposal to expand the scope of “observations” of Chinese investment in “key sectors” of the U.S. economy was also highlighted, as well as potentially giving “foreign agent” status to Chinese state media accredited in the United States.

China reacted warily to a previous tax code drafted in the House of Representatives, which will replace a similar 1986 document. The new tax law fits in with the general trend of the new administration aimed at improving competitiveness of American companies and creating jobs in the United States. According to Chinese experts, this may be “a serious test” for PRC companies operating in the U.S. market.

Generally in China it is believed that the U.S. tendency identified in recent forums in Da Nang and Manila towards strengthening its position in the Indo-Pacific region has clear anti-Chinese sentiment, with a particular aim of hindering the reestablishment of the Silk Road.

It is noted, however, that the U.S. today does not possess nearly the same, almost absolute, influence it once did, not only on global events, but even on its closest allies, and there is good reason to come to this conclusion.

Perhaps the most compelling reason is that it is becoming increasingly apparent that Japan is seeking to decrease political tensions in its relations with PRC and showing increased interest in a new Silk Road. According to the Japanese newspaper The Mainichi Shimbun, this is evidenced by the cordial meeting held in Da Nang between Shinzo Abe and Xi Jinping as well as signals coming from the government to the powerful business Federation “Keidanren” regarding matters of cooperation of Japanese companies in one or another projects relating to the Silk Road.

At the end of November this year, a delegation of 250 representatives from “Keidanren” has accompanied the Minister of Foreign Affairs Taro Kono on his trip to Beijing, where they were received by the China’s Prime Minister Li Keqiang.

Increased interest on Japan’s part with regard to the Silk Road can be expected on the background of failures of the last summit when the “TPP without the United States” project was torpedoed at the last moment by the Canadian Prime Minister Justin Trudeau.

On 3 December, Trudeau arrived in Beijing for an official five-day visit, the main objective of which was to accelerate the negotiation process and conclude a long-awaited free trade agreement with China. The backdrop of this trip was problems with restructuring the North American Free Trade Agreement (NAFTA), members of which include, along with Canada, the USA and Mexico.

U.S. support of Europe in their refusal to grant the Chinese economy “market” status will no doubt be a serious obstacle to the further expansion of China’s presence on the European and American markets. But China has already reached a level of development which allows it to configure alternative forms of economic cooperation, particularly with participation of its closest allies of the USA.

This is an extremely important trend for the development of the situation in the Indo-Pacific region, and is going in a direction diametrically opposed to American attempts to revive the anti-Chinese “Initiative 4”.

Vladimir Terekhov, expert on the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook