US trade policy deviates from WTO rules

By Dong Yan Source:Global Times Published: 2017/8/15 20:23:39

Illustration: Liu Rui/GT

"The Trump administration believes in free and fair trade," US Secretary of Commerce Wilbur Ross wrote in an op-ed piece entitled "Free-Trade is a Two-Way Street" for the Wall Street Journal.

Free trade and fair competition are the basic principles embraced by the WTO, but US trade policy under Trump deviates from what the multilateral trade system advocates.

The US stresses absolute fairness so that American producers are in the same competitive environment as their peers in other countries, and the level of tariffs and trade barriers of other countries are the same as the US. But while calling for fair competition, the WTO also emphasizes relative fairness. In making trade rules, the WTO fully considers the different stages of economic development of developing and developed countries and allows members to use a non-reciprocity principle so that its developing members have more flexibility in their commitment, actions and application of trade policy tools.

By calling for free trade, the US actually seeks to quickly decrease trade barriers facing it in a short period by unilaterally pressing others and readjusting the current international trade order. Yet the current free trade system has come into shape progressively after nine rounds of multilateral trade negotiations from 1947 till now. While upholding an open market, the WTO believes that in achieving trade liberalization there is an adjustment period that allows progressive liberalization so as to give developing countries more time to adapt.

The economic and trade ties between the US and China, respectively the largest developed country and the largest developing country, are the result of an international division of labor and optimized resource allocation in the context of globalization. The ties will develop based on economic globalization and be legally guaranteed by WTO rules and multilateral and bilateral pacts.

The US side partially emphasized the influence of trade on its manufacturing. The way to analyze international trade welfare effects at the national level differs markedly from the financial income statement of Trump family's conglomerate. Nationally, the static gains from trade include effects on consumer surpluses, producer surpluses and government revenue. The influence of international trade on different economic agents varies. Trade usually helps governments make revenue on tariffs and enhances consumer surplus and export earnings. In a short period, some domestic companies will suffer shocks from imported products. But in the long run, open trade boosts economic efficiency and promotes industrial upgrades and economic growth to create dynamic income. It would be one-sided to only stress the losses of domestic companies and evade the gains of most economic agents.

The US has brought high losses to China if China analyzes its trade as the US does. US multinationals have made handsome profits in China while China has only made meager gains. US agricultural products like soybeans have impacted Chinese producers enormously and unemployment rates are high in China's manufacturing sector due to US economic fluctuations. But China has been dealing with its economic relationship with the US using a positive approach and considers it mutually beneficial for a win-win outcome. A study report by China's Ministry of Commerce in May conducted a holistic analysis of gains that China and the US made from their trade. In comparison, relevant US reports only emphasizes losses like unemployment in particular industries.

It is constructive for the steady development of globalization to lay emphasis on trade and income distribution, and balance of interests in industries. But it would be shirking responsibilities if one considers sharing benefits simply as pressing trading partners so one's gains can be assuaged through others' concessions. During globalization, choices are made voluntarily under the drive of the market. In an export-oriented economy, earnings coexist with risk. To address problems arising in the globalization process needs international coordination and more importantly, economic restructuring and improved systems of trade and aid.

The WTO's basic principles consist of openness, transparency, inclusiveness and non-discrimination. As a major founder and leader of the multilateral trade system and rules, the US has to follow them in making trade policy.

The author is director of the Research Section of International Trade at the Institute of World Economics and Politics, Chinese Academy of Social Sciences. Follow us on Twitter @GTopinion

Posted in: VIEWPOINT

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