Beyond Xi-Trump dinner, WTO reform plan may worsen trade spat3 min read . Updated: 01 Dec 2018, 10:30 AM IST
Reform proposals made it clear China is not going to accept demands raised by so-called China hawks in the US administration
Geneva: The high stakes dinner meeting between US President Donald Trump and Chinese President Xi Jinping on Saturday in Buenos Aires may hold off the worsening tariff war between the world’s two largest economies for the time being.
But the fundamental trade-related differences between the world’s two largest economies are unlikely to be resolved any time soon and the trade war could worsen further as China will not agree to give up its specific “development model", which the US wants to dismantle, according to people in the know.
Ahead of the Trump-Xi meeting, China unveiled a set of proposals for reforming the World Trade Organization (WTO) on Wednesday. Beijing called for respecting “members’ development models", implying that countries cannot be unilaterally targeted for pursuing specific developmental models. “The (WTO) reform should prohibit discrimination against enterprises or certain members in investment security review and anti-trust investigations" and reforms “should address the abuse by developed members of export control measures in obstructing technology cooperation", China said.
It called on WTO members to “oppose special and discriminatory disciplines against state-owned enterprises in the name of WTO reform".
The reform proposals made it clear Beijing is not going to accept demands raised by the so-called China hawks/economic nationalists in the Trump administration who want China to fundamentally alter its system of economic organization, abandon strategies that made Chinese firms leading players in global trade, and give up its ambition to become a world leader in high-tech industries.
“I think we are very close to doing something with China," said President Trump, before leaving for the G20 leaders’ meeting on late Thursday. “But I don’t know that I want to do it," Trump said, giving a glimpse of the ongoing war of nerves within his own administration.
The US economic and trade administration is torn between the China hawks on the one side and the liberal finance-driven elite on the other. The China hawks include US Trade Representative (USTR) Robert Lighthizer and David Navarro.
They want President Trump to hold firm until Washington secures big changes in the Chinese economic policy, including dismantling of state-owned enterprises and strict subsidy and intellectual property rules to stop the alleged theft of technologies.
Ambassador Lighthizer, who is a key member of the President’s delegation, announced hours before leaving for Buenos Aires that “as the President has repeatedly noted, China’s aggressive, state-directed industrial policies are causing severe harm to US workers and manufacturers".
Despite raising these issues with China, Beijing “has not come to the table with proposals for meaningful reform(s)," said Lighthizer on 28 November. The USTR singled out China’s automobile tariffs, saying Beijing imposes a tariff of 40% on American automobiles as compared to the US’s 27.5% tariff on Chinese-produced automobiles.
In sharp contrast, treasury secretary Steven Mnuchin and the director of the National Economic Council, Larry Kudlow, who largely echo the views of the markets and the Wall Street are pushing Trump to settle for a deal to bring normalcy back in the financial markets.
Besides, the American producers of soya and other products have had to face a huge loss because of the tariffs imposed by China in retaliation to the American unilateral measures under the US Section 232 and Special 301 provisions.
The recent losses suffered by the Republican party in the US House of Representatives in midterm elections are an indication of the dangers involved in pressing with make-or-break trade war following the punitive tariffs imposed on Chinese goods of more than $250 billion. In return, China also levied tit-for-tat measures on a range of products that hurt American farm exports.
Even General Motors, the largest US carmaker, announced sweeping lay-offs and plant closures due to the additional import tariffs imposed by the US on steel products. Many American businesses and industrialists had complained that they could not sustain a further escalation in the trade conflict.
China also suffered severe economic losses, including a downturn in its economic growth, over the past one year. But Beijing is much more robustly equipped with huge reserves to face the US at this juncture. Small wonder that it is Trump who kick-started the stalled negotiations with a telephone call on 1 November, setting the stage for the meeting in Buenos Aires.
“The trade nationalists want to move production back to the US, make it harder for the Chinese to compete with US-based high-tech firms, and divert China-based supply chains to other countries," writes Professor David M. Trubek, an academic from University of Wisconsin.
“But the hawks want China to fundamentally alter its system of economic organization, abandon strategies that have benefitted millions, and give up its ambition to become a world leader in high tech industries," Trubek said, suggesting China will not accept those changes.