Trade
No end in sight for China and America’s trade warriors
Author: Yang Yao, Peking University
The meeting of President Xi Jinping and President Donald Trump at the Osaka G20 summit in late June brought hope back to the US–China trade negotiations. Following the meeting, the US side quietly took 110 Chinese products off the 25 per cent punitive tariff list and allowed US companies to apply for permission to export parts to Chinese electronics giant, Huawei. In return, China promised to restart its imports of US soybeans. The distance between the two sides has since widened. And it’s not likely to narrow anytime soon.
Following Osaka, the meeting of negotiators in Shanghai at the end of July was short and inconclusive and the tit-for-tat trade war resumed. In early August, President Trump announced his intention to apply 10 per cent tariffs on the remaining US$300 billion dollars of Chinese exports to the United States. In retaliation, China postponed its promised purchase of US soybeans. Trump then withdrew his order to hold off on the ban of parts sales to Huawei, though allowing for another grace period of 90 days on 19 August. But the US Treasury then named China a currency manipulator.
In response to the imposition of punitive tariffs on US$75 billion worth of US exports to China, last Friday Trump lifted tariffs to 30 per cent on the original US$250 billion Chinese exports to the United States and to 15 per cent on the remaining US$300 billion. He also ordered US firms to quit business in China.
China generally has taken a defensive position since the trade war was initiated by Trump in April 2018. The Chinese government has taken steps to defuse some US demands since the Buenos Aires G20 summit in December 2018. Immediately after that summit, Beijing announced several measures to further open the country’s financial markets to foreign-owned companies. During this year’s National People’s Congress (NPC) a new Foreign Investment Law was passed that specifically makes illegal any form of forced technology transfer. The newly-released negative list for foreign investment was cut drastically from 145 to 40 investment categories.
The remaining US demands are either unrealistic or to meet tough resistance from China. It is unrealistic, for instance, to demand that the US–China trade imbalance be sharply reduced over two years because that would require that China more than double its imports from the United States. This is a task impossible for China to fulfil. It doesn’t address the US domestic policies that are one of the fundamental causes of the US–China trade imbalance. Trump’s tax cuts have expanded the imbalance; the trade balance is primarily a US problem.
Naming China as a currency manipulator is not just groundless but also damaging to the reputation of the US Treasury. As the IMF Article 4 review report states clearly, the Renminbi’s fall beyond 7 yuan per US dollar was a result of market forces. In reality, Chinese monetary authorities have tried hard to not allow the Renminbi to depreciate too quickly after August 2015, when a more flexible exchange rate regime was introduced.
Subsidies supporting innovation and state-owned enterprises (SOEs) will remain a contentious issue between the two countries. While it is possible to resolve the SOE issue by appealing to the notion of competitive neutrality, it is harder to draw a line on the use of subsidies because they can take subtle forms. For example, bank interest rates are still fixed by the government, at levels much lower than the prevailing market rates. Because it is much easier for large firms, most of them SOEs, to obtain bank loans, this financial market distortion delivers subsidies to SOEs.
More contentious is the implementation of changes to economic and trade practices. The United States demands that China change its laws and wants to write these changes into any agreement with China. The Chinese side sees this as an action infringing on the country’s sovereignty. The Chinese negotiating team insists that any legal changes must be legislated by the NPC and cannot be predetermined in an agreement. The US Congress would hardly accept legislation through treaty the other way round. The Chinese side also asks the text of the agreement be balanced when it comes to implementation.
The hurdle that seems to have blocked the continuation of the Shanghai negotiations was the precondition raised by China after the Osaka G20 summit that the United States get rid of all punitive tariffs before any further talks take place. Trump’s new tariffs suggest that the United States has not…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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