China’s hypocrisy on trade
Complaining about US protectionism to the WTO while protecting your own economy is rich indeed
Rana Foroohar
© Matt KenyonThe definition of insanity is doing the same thing over and over again and expecting different results.
It’s a pattern that seems relevant to last week’s headlines, including Chinese leader Xi Jinping’s meeting in Beijing with more than a dozen American chief executives, in an attempt to quell their worries about doing business in the country.
This meeting took place when the US and UK had just imposed sanctions on hackers, whom they accuse of a long, China-sponsored effort to insert malware into the US electrical grid and defence systems.
And when China has just announced new guidelines to block AMD and Intel chips in its government PCs and servers.
It also comes as global worries about Chinese electric vehicle dumping are sky high.
And as Beijing has gone to the World Trade Organization to challenge the Biden administration’s signature Inflation Reduction Act.
On this last point, all I can think is: seriously?
Is there anyone blind to the hypocrisy of China challenging tax credits that support US clean energy producers for breaking WTO rules, when its entire economic model benefits from a double standard in which everyone seems to accept its own wildly discriminatory policies?
China’s economy is, after all, built on plans that lay out decades-long subsidies and protectionist ringfencing for the most strategic industries, including but not limited to clean energy, telecommunications and artificial intelligence.
This massive problem hides in plain sight.
The word “protectionism” tends to only come up when the US or Europe attempt to impose tariffs or subsidies to protect their own industries.
This is true even when it’s for good strategic reasons such as the need to deal with climate change or create a just transition to the green economy for workers.
And yet, when it comes from China, protectionism is understood to be the status quo.
The rest of the world seems to simply accept that this is the starting point of China’s state capitalism; we sigh and wring our hands, all while hoping against hope that something in this picture will change.
Well, here’s a newsflash — without a new approach, nothing will.
The entire nature of China’s political economy goes against the free trade assumptions of the WTO, not to mention the Washington Consensus, which held that emerging nations would simply fall seamlessly in line with free market rules written by western powers.
We know that this has not happened.
In fact, one of the best instances of progress of late has been policymakers (mostly in the US, but some in Europe, too) beginning to take their blinkers off and look at the world as it really is.
You can see this in the statement issued by US trade representative Katherine Tai last week, following Beijing’s request for WTO consultations.
She pointed out the need for the US to tackle climate change while also strengthening supply chains, an issue amplified by last week’s disastrous bridge collapse at the Baltimore port.
But she also noted that the People’s Republic of China “continues to use unfair, non-market policies and practices to undermine fair competition and pursue the dominance of the PRC’s manufacturers both in the PRC and in global markets.”
You can sum up the takeaway here in three words: pot, kettle, black.
Europeans, like so many American chief executives, have long been wilfully blind to the fact that the global trade model and the institutions that support it are not built to deal with today’s reality.
But we may be at a turning point.
As Tai told me last week, “Europe’s existential concerns about the effects of Chinese EV dumping have reached a fever pitch.”
Meanwhile, developing countries, including many in Africa, “are asking for more policy space, because China gets it.”
Translation: if China can break the rules, why can’t we?
This, along with China’s new manufacturing stimulus plan, which is about to flood the world with even more cheap stuff, will only continue to expose the cracks in the current trade system.
The true picture — that the WTO’s rules are often a straitjacket for everyone but China — is becoming ever clearer.
How do we get to a better place?
Not at the WTO as it currently exists; it’s become a hub of technocratic wrangling and political posturing for domestic audiences.
Personally, I like the idea of starting from scratch, and bringing together a core group of large deficit and surplus nations — the US, UK, Canada, Australia, China, Germany, South Korea and Taiwan among them — to acknowledge that we need new, purpose-built institutions in which to adjudicate disputes.
The rules of any new system must allow for a variety of political economies.
There must be an understanding that countries have a right — indeed a need — to protect their own economic and political stability at home, even as they engage in global trade.
These things should not be exclusive; that’s the biggest lesson from China’s own development story.
This will not be a simple process.
But every day brings more evidence that the old system is broken.
We’ve reached the limits of a model in which cheap capital searched for cheap labour regardless of the costs.
That has brought us pharmaceutical shortages and WTO cage fights with no end, along with popular distrust in governments and business leaders who refuse to admit the obvious — we need to do something different.
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