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Trading  | June 22, 2017

Trump’s trade tsar, Robert Lighthizer, aka the US Trade Representative speaking before Congress on Wednesday, fired a warning shot at both Beijing and the World Trade Organization, warning that any decision to label China a “market economy” would have “cataclysmic” consequences for the body which has governed over international trade for decades. The statement comes in the context of a possible trade war over steel imports, further distancing the Trump administration from the WTO, and as UBS wryly adds, “President Xi of China may not be getting the return he expected on his investment of political capital in the US.”

As the FT details, Lighthizer said the US was eager to see changes in the WTO’s dispute resolution system, arguing that the country had unfairly ended up as the top target for complaints in the global trade court. But the US trade rep singled out a dispute brought last December by China against the EU and US over whether it should be deemed a market economy as the “most serious litigation that we have at the WTO right now”.

“I have made it very clear that a bad decision with respect to the non-market economy status of China . . . would be cataclysmic for the WTO,” he said.

While the trade tzar did not elaborate what US action that would lead to and he added he was “assuming . . . that the WTO is going to do the right thing”, the warning pointed to how the Trump administration is changing the US relationship with the WTO and other multilateral institutions it helped create following the second world war.

As a reminder, designating China as a “market economy” would recognize its commitment to free market policies, and if China – whose import tariffs and protectionist measures are well known – were to win this qualification, it would make it more difficult for the U.S. to win cases the US brings against China for violations such as dumping steel, a practice China has regularly engaged in when prices drop low enough.

To be sure, Lighthizer has been a longstanding critic of the WTO and has argued for the US to take a far more aggressive approach in its relationship with both the WTI and China. In written testimony to Congress in 2010 he called for the US to end what he called its “unthinking, simplistic and slavish dedication” to WTO rules. Building on this, during his presidential campaign, Trump repeatedly threatened to pull the US from the WTO, although his stance has since softened. 

That said, there is good evidence that Lighthizer’s skepticism is justified: there is evidence that allowing China’s accession to the WTO fifteen years ago was the trade policy decision that most led to joblessness and stagnant incomes, specifically in the manufacturing sector. Or, as Barclays puts it, unleashed the current round of hyperglobalization…

… leading to stagnant incomes for the middle class.

The US Trade repo continued his criticism of China on Thursday, when he said he’d like to study the reason for Ford’s previously reproted plan to shift production of Focus-model cars to a Chinese factory and learn about its “incentives.” Lighthizer, speaking before House Ways and Means Committee, said if it’s found that Ford made the decision for “non-economic reasons” then the administration “should take action.”

Meanwhile, Beijing contends that the agreement when it joined the WTO in December 2001 was that it would automatically be awarded market economy status for the purpose of the calculations used in anti-dumping cases. Currently, its non-market economy status means that the US and other countries can use prices in third countries to determine the size of punitive tariffs used to combat dumping, or the selling below cost of products, by Chinese companies.

The aggressive push comes three months after Trump’s meeting with Chinese president Xi Jinping where Trump announced a 100-day plan to tackle trade issues and promised a friendlier tone if Beijing reined in North Korea. As part of that process Washington and Beijing announced an interim deal last month that allowed a resumption of US beef exports to China and paved the way for other measures including additional US LNG exports. Perhaps as a preemptive loophole, Trump tweeted earlier this week that China has failed to keep its part of the bargain and rein in North Korea.

Lighthizer said on Wednesday that this was just one strand of discussions and warned that many other tough negotiations lay ahead. Among the issues the US was now focusing on were new barriers to US tech companies doing business in China, he said. “The pressure is still on,” he said. “The trade deficit still hasn’t come down.”

And while trade with China remains a very open, and potentially escalating issue should trade war eventually break out as some suggest, a far greater problem for the US in terms of countering the impact of “globalization” looms elsewhere: robots.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

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