This U.S.– China Trade War Needs to Stop!

julio 15, 2019

Por: Luis Carlos Ramirez

Abogado de la Pontificia Universidad Javeriana, Magíster en Derecho, Universidad Sergio Arboleda y Magíster en Derecho Internacional, The Fletcher School of Law and Diplomacy, Tufts University. Profesor de Régimen de Comercio Exterior de Maestría y Especialización en Derecho Empresarial, Pontificia Universidad Javeriana, sede Cali. Consultor en Derecho Económico Internacional. Miembro ACCOLDI

It seems logical: it is always better friendship than strife. Transactional costs of cooperation, win-win solutions between the parties to a dispute, are always lower than in litigations. Only one party is supposed to win when fighting. Rather, both the U.S. and China need to settle their differences, in favor their economies, jobs and the very Trading System’s survival.

However, achieving that goal has been difficult until now due to several reasons. Both parties continue to injuring one another thereby facing billionaire loses. This situation will also impair other economies if nothing is done soon to fix it.

Mutual Injuries

Up to date, the U.S. and China have placed reciprocal tariffs on nearly US$360 bn in total amid the ongoing war despite a first 90 days truce agreed on last December at the G20 summit. When splitting the tariffs imposed, figures show U.S. going with $250 bn whereas China would complete $110 bn in retaliation. The U.S. has kept using these tariffs pressing China to address U.S.’ concerns on intellectual property. See, for example, the U.S.’ recent sort of self-defeating bans on Huawei. Yet additional restrictive measures are not discarded.

Indeed, tariffs in the steel and aluminum industry keep injuring that global supply chain. At least $9,428,362 were spent last year by large U.S. based companies lobbying the U.S. Government to repeal these measures. Despite enormous efforts, mainly before the Department of Commerce, trade associations, the U.S. Chamber of Commerce, importers or law firms have failed to remove these tariffs.

Diplomacy Should Prevail

A widely known principle for successful negotiations is ‘reciprocity’, obtaining concessions by conceding concessions. Hence, diplomacy should prevail as suggested by recent facts involving both parties.

First, basic interdependency so advises. The U.S. needs to remember that, as of today, China is the second largest economic power. For example, it became the first exporter of goods since long ago (2007) and also the first U.S.’ goods supplier over the last years (since 2003) in the absence of an FTA, for the last case. In turn, Mexico and Canada haven’t been that ‘lucky’, despite being the U.S.’ natural NAFTA partners, witnessing this U.S.’ significant reliance on Chinese imports. Exhausting diplomacy might be useful for the U.S. to, overarchingly, protect its global leadership and, particularly, securing its goods sources. Emulating this would invigorate China’s rising geopolitical influence. Worth trying.

Second, the U.S. is facing several claims at the WTO, which were filed by China, the E.U., Russia, Canada, and other members against the U.S.’s Section 232 restrictions on steel and aluminum (2018). They  argue -and I agree – that those restrictions disregard the requisites for the adoption of security exceptions, Article XXI GATT. Neither safeguards provisions, Article XIX GATT, nor Most Favored Nation’s, Article I GATT, are observed therein. Interestingly, a recent WTO’s panel made the first substantive ruling on GATT’s security exceptions. It might critically weaken the U.S.’s arguments within those disputes, hence pushing again for either embracing a negotiation or, likely, withstanding a defeat.

Third, China’s recent request to suspend the proceedings on its WTO cases against the U.S. and the E.U. over market economy status claims might ease said negotiation. The roots of this trade war might be found in China’s accession to the WTO in 2001. Nearly 17 years ago, China became a member of this club thereby promising to abide by the rules of a western-based economic model: transitioning from its non-market to a market economy system. That way paragraph 15 of its Protocol of Accession to the WTO allowed for a, today disputed, time-limited application of alternative methodologies to more readily adopt duties on Chinese imports.

While upon the expiry of those rules in December 11 2016 China filed cases against those members before the WTO, the final ruling would be against China to which this would have preferred withdrawing its suit against the E.U. before facing the official report. Consequently, the parties could leverage this scenario as an additional reason to foster that broader negotiation.

Finally, albeit weak previous attempts to make progress in unleashing this knot by lifting a substantial part of the tariffs, the upshots of this year’s Japan G-20 summit brought about a new opportunity for resuming trade talks. Applying the principle of reciprocity would have proven helpful since Huawei’s could be a great example of an early payoff of following this principle.

Avenues To Consider

Ultimately, the U.S. and China may consider two major choices. One, a broader -sort of new accession- negotiation at the WTO on China’s economic model. Two, keep fighting as both, and everyone, suffer the deplorable consequences.

Though the forthcoming presidential campaign should suggest a paradigm shift in this trade war, regretfully, the position of the majority of the democrat candidates towards trade would frustrate such a negotiation. Whoever the winner, it shall feel the pain of having shot -or continued shooting- its own foot.

Foto tomada de https://unsplash.com/search/photos/exports

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