Section 301 probe won’t shake up China’s economy

By Mei Xinyu Source:Global Times Published: 2017/8/17 22:08:40

Illustration: Peter C. Espina/GT

On Monday, US President Donald Trump announced the launch of the so-called Section 301 trade investigations into China's relevant laws, policies and practices for violations of US intellectual property rights (IPR). While the news went viral on domestic and foreign media, I don't think the investigation will cause much trouble for the Chinese economy.

Why? It is not because the US' unilateral use of Section 301 violates WTO rules. It is not because the unfair content of Section 301 violates objective economic rules, either. After all, Trump told reporters last month that the US could even pull out of the WTO, so it is really not a big issue if the US government merely violates WTO rules.

It is because Chinese industries and exporters have already seen enough of US Section 301 investigations. It has been nearly 30 years since the US first wielded this stick against China. Nevertheless, the Chinese economy and its exports still grew rapidly in this period.

Now that great shifts have happened to the relative economic strength of both China and the US, there is no way for China to be scared about a Section 301 investigation.

Section 301 of the Trade Act of 1974 authorizes the president to unilaterally take trade restriction measures on countries that either violate trade agreements or engage in other unfair trade practices. In 1989, China was one of the countries put on the "priority watch list" under the Special Section 301, which was extended to target IPR violations. In October 1991, the US announced a Section 301 probe against China.

The US has used Special Section 301 against China for 28 years, and in that period China's GDP and trade have expanded by leaps and bounds.

In terms of GDP, in 1989, China's nominal GDP was $461.1 billion, and that of the US was $5.66 trillion, 11.39 times that of China, IMF data showed.

In 2016, China's nominal GDP rose to $11.39 trillion, while that of the US reached $18.56 trillion, equivalent to 1.63 times that of China.

In terms of foreign trade, in 1989, China's exports amounted to $195.6 billion, but the figure almost doubled to $382.7 billion in 1991. It surged to $2.1 trillion in 2016, including $385.1 billion in exports to the US.

More importantly, since 1989, the country's import and export structure, trade balance and global market share have all undergone revolutionary changes.

Before the US started to use Special Section 301 against China, China's exports were mainly comprised of primary products and imports were mostly manufactured goods, which led to a continuous trade deficit. Yet, in 1990, China's exports of manufactured goods exceeded imports in terms of value for the first time. In 1995, China's imports of primary products exceeded exports in terms of value for the first time. As a result, China quickly developed into the largest exporter of manufactured goods and the largest importer of primary products in the world.

With these fundamental changes in China's trade structure and balance, China's share in the global commodity export market climbed from 0.9 percent in 1948 to 14.2 percent in 2015, higher than that of the US and near the peak level of the US in the early 1950s.

Despite previous Section 301 investigations, 28 years of China's economic development show that such investigations have failed to cause much trouble for the Chinese economy.

Instead China has become the world's largest manufacturer and exporter, with the world's largest foreign exchange reserves. Viewed from this perspective, this latest use of Section 301 is unlikely to shake up China's economy.

The author is a research fellow with the Chinese Academy of International Trade and Economic Cooperation.


blog comments powered by Disqus