Trade correspondent L.C. writes:
China is reportedly prepared to offer to boost imports from the US by one trillion dollars. This would supposedly correct the entire bilateral trade imbalance by 2024 .
Is China’s offer to be taken seriously? Any pledge by Beijing to increase imports runs up against a tough reality — the slowing Chinese economy and its debt overhang. To find enough products it wishes to import from the US, Beijing would doubtless revive its long-standing demand that the US relax its national-security export controls.
But the more fundamental problem is that although President Trump is focused on the trade deficit, US policy toward China also requires correcting China’s structural abuses – intellectual property theft, forced technology transfer, state subsidies leading to overcapacity, and discrimination in favor of state-owned enterprises and “national champions” such as 5th generation telecommunications equipment.
Even if President Trump were inclined to accept an offer centered about trimming the US trade deficit, he would come under immense pressure not to take such a deal. US Trade Representative (USTR) Robert Lighthizer has reportedly already rejected it. The US Chamber of Commerce is warning the Administration not to overstate progress as long as structural concessions aren’t on the table. House Ways & Means Committee Chairman Richard Neal (D-MA) is telling Trump not to accept “easy one-off transactions” but hold out for fundamental changes.
It appears that what’s being offered is a shift of Chinese imports from other foreign suppliers to the US. That could only occur if the Chinese government steps in to direct private purchases. This would be an intensification of China’s managed-trade regime that it is supposed to be giving up. It would also be a breach of global trade norms and perhaps even WTO rules. And, most importantly, it would anger US trading partners who would lose some of their Chinese market to US rivals. That would turn Europe and other present US allies against the US. This is no doubt China’s intention in making such an offer, for it would destroy the possibility of US-EU-Japanese cooperation against China’s abuses.
US goes after China’s “self-declaring” itself a developing country
This week saw an important development relating to WTO reform. The US circulated to WTO members a 45-page paper which argues against allowing China to declare itself a “developing country.” The paper is intended to be discussed at the WTO mini-ministerial to be held on January 25th at the World Economic Forum. It compiles a massive amount of data to support the point that China — as well as several other advanced developing countries — should not retain the same exemption from WTO obligations accorded to the poorest countries. Though China strongly contests this effort to withdraw some of its benefits, the US can find support among many WTO members, including Japan and the EU.
If Washington is able to prevail on this point, it would go a long way toward easing its anger at the WTO and its allegation that the institution is unable to deal fairly with China. However, any changes to WTO rules and principles will be difficult because they must be agreed to by consensus. China wouldn’t be the only veto; it can usually marshal several other WTO members to support its positions.
On reading the document, one is struck by its praise for global trade liberalization. The Introduction states that between 1993 and 2015,
“the percentage of people around the world who live in extreme poverty fell from 33.5% to 10%…. Trade appears to have been an important contributor to these positive trends [as] exports of goods more than tripled and exports of services more than quadrupled…. Underpinned by principles of transparency, openness, and predictability, WTO rules were crafted in part to set conditions most favorable for increasing trade, attracting investment, and improving efficiency…. The economic tides since the creation of the WTO have lifted nearly all boats….
Then comes the “however”:
However,… [d]espite [these] great development strides… the WTO remains stuck in a simplistic and clearly outdated construct of ‘North-South’ division, developed and developing countries.”
However,… [d]espite [these] great development strides… the WTO remains stuck in a simplistic and clearly outdated construct of ‘North-South’ division, developed and developing countries.”
The paper then proceeds to lay out the economic data and indicators of development in specific sectors that show how different China, India, and several other countries are from poorer countries, such as those of Sub-Saharan Africa. These are with justification accorded developing-country status. But unfortunately, at present, “any WTO Member can ‘self-declare [itself to be] a developing Member and thereby assert its right to benefit from S&D [special and differential] provisions treatment…”
Two other Chinese irritants: Huawei and ZTE
China’s “national champion” telecom giants Huawei and ZTE took more hits this week. It was reported that US prosecutors are investigating Huawei for theft of trade secrets from T-Mobile and may soon hand down indictments targeting company officials. Meanwhile a bill has been introduced in Congress – the Telecommunications Denial Order Enforcement Act – to ban Huawei and ZTE from buying parts and components from US companies. The bill is sponsored by Sens. Tom Cotton (R-AR) and Chris Van Hollen (D-MD) and by Reps. Ruben Gallego (D-AZ) and Mike Gallagher (R-WI). Senator Cotton’s office released a strong statement:
“Huawei is effectively an intelligence-gathering arm of the Chinese Communist Party whose founder and CEO was an engineer for the People’s Liberation Army. If Chinese telecom companies like Huawei violate our sanctions or export control laws, they should receive nothing less than the death penalty – which this denial order would provide. It’s imperative we take decisive action to protect US interests and enforce our laws.” In fact, it is understood that the companies, ZTE especially as noted above, would have great difficulty continuing in business if they were not able to use US-made components.
The new criminal investigation, first reported in the January 16th Wall Street Journal, was prompted by civil lawsuits against Huawei, “including one in which a Seattle jury found Huawei liable for misappropriating robotic technology from a T-Mobile laboratory. Called Tappy, the technology is used for testing phones and was proprietary to T-Mobile.
This week’s developments follow the Canadian arrest of Huawei CFO Meng Wanzhou, Beijing’s arrest of Canadian nationals in retaliation, the arrest in Poland of a Huawei employee for espionage, action by the Commerce Department to stop export of products from Huawei’s Silicon Valley R&D unit, and a general push by the US government to convince other governments not to use Huawei and ZTE technology and in particular not to use their 5G technology. Most recently Taiwan banned Huawei products at least for government use, following Australia, New Zealand, and others. Canada, Japan, Norway, and the UK are considering similar action.
Huawei is the world’s largest telecom equipment provider. Analysts report that it is financially stronger than ZTE, less dependent on selling mobile phones, and less dependent on US tech for the phones it makes; it is also aggressively branching out to develop its own operating system and find alternate component suppliers. But even if it survives a loss of US operations and is also shunned by other governments, it will be severely damaged.
Beijing has reacted angrily.
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