Intensifying Frictions

U.S. trade disputes against China abound, but few expect a full trade war between the two economic giants 
 
CHINESE REACTION: A customer in Beijing consults a salesperson about a BUICK car from the United States. China's Ministry of Commerce announced plans to launch an anti-dumping and countervailing investigation on certain U.S. automobile and chicken products in September
 
As the biggest developed and developing country, respectively, the United States and China, used to be complementary of and dependent on one another in terms of their import-export relationship. Now, the two have fallen upon unfortunate times as trade frictions increase in prevalence, becoming a contentious topic of discussion.

Tensions started on September 11, 2009, when U.S. President Barack Obama decided to levy three-year punitive tariffs on all car and light truck tires imported from China. Before Obama's visit to China on November 15, the United States had launched many trade protection actions against China, with tires, oil country tubular goods, coated paper, potassium pyrophosphate, monopotassium phosphate and potassium hydrogen phosphate becoming the targets of the United States' trade strike.

The frequency of anti-dumping and countervailing cases launched by the United States has been relatively high in the history of world trade.

In the interest of its domestic industries, China has implemented appropriate trade countermeasures, launching anti-dumping and countervailing investigations on certain automobiles and chicken products originating from the United States.

While these disputes account for a small proportion in the overall cooperation between China and the United States, the sudden frictions have already begun to affect the involved Chinese industries and companies.

At a seminar on international trade development held on November 7 in Tianjin, Yao Jian, spokesman for the Ministry of Commerce (MOFCOM), said that trade frictions between China and the United States are increasing and trade protectionist measures adopted by countries including the United States have already deeply affected China.

Why now?

The intensified trade protectionism measures adopted by the United States against China arose from the "framework for strong, sustainable and balanced growth" put forward by Obama at the G20 Summit held in Pittsburgh. The U.S. Government has proposed the idea that the financial crisis is a consequence of the imbalance in the global economy, especially the imbalance in trade between China and the United States. The trade protectionism measures against China are to balance the trade equation between the two countries, narrow the surplus and precipitate renminbi appreciation.
 
AMERICAN ACTION: Steel pipes produced by Hengyang Valin Steel Tube Co. Ltd. in Hunan Province are sold in more than 40 countries and regions of the world. The United States carried out anti-dumping and countervailing investigations on Chinese steel pipes and tires since October (SU XIAOZHOU)

This viewpoint held by the U.S. Govern-ment, however, seems farfetched to many Chinese. At a seminar on trade, China and world economic order held in Beijing on October 23, Wu Xiaoling, Vice Chairman of the Finance and Economic Committee of the Standing Committee of the 11th National People's Congress, said trade surpluses or deficits are mainly caused by factors such as changes of the productivity layout and different labor costs. The global trend has seen countries that master new technologies—headed by the United States—transferring many of their manufacturing industries to emerging countries that have cheaper labor, while they themselves focus on developing service, financial and hi-tech industries. These changes in the productivity pattern and manufacturing industries decide the trade surplus and deficits, Wu said.

After realizing a free-floating exchange rate, Deutsche mark and Japanese yen both appreciated sharply against U.S. dollar, Wu said. By now, such appreciation hasn't completely eliminated the trade surplus by Germany and Japan against the United States.

Tu Xinquan, Deputy Director of the China Institute for WTO Studies of the University of International Business and Economics, thinks that the increase of trade frictions between China and the United States is actually closely related to the domestic economic situation in the United States, where a high unemployment rate and an industrial base in recession dominate the American economic landscape. In order to protect its domestic market and employment under such harsh economic conditions, the government is quick to yield to the country's trade protectionists.

Moreover, economic factors are not the only motive for the United States to launch trade protectionist measures. Domestic political pressure could also play an influential role in these kinds of trade actions. Strategic factors have also been known to play a more important role than economic factors in anti-monopoly actions. The current economic crisis and domestic political struggles in the United States will only see a recurrence of American resistance to Chinese products, Tu said.

Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation of the MOFCOM, thinks that China has found itself in the present trade situation because of previous ineffective counterblows.

On one hand, the Chinese Government seldom uses trade retaliation measures during trade disputes. When it does, many measures are not as serious as they could be, allowing foreign governments and companies to all but ignoring China's determination to take decisive actions to protect its interests.

On the other hand, when facing trade remedy investigations by other countries, Chinese companies do not often have a firm understanding or ability to take effective measures to cope with the litigations. At times, Chinese firms will simply not respond to the charges, leaving the impression that they are weak and open to bullying, which only encourages trade protectionism to some extent, said Mei.

The case seems to be repeating itself now between China and the United States, as China is only hesitantly engaging in the trade dispute by launching token counterblows.

Is trade war possible?

A trade war between China and the United States would only make the two sides suffer financially and economically. China resolutely opposes trade protectionism, an act that will only seriously harm the international trade environment, greatly weaken the effect of economic stimulus measures adopted around the globe and obstruct the overall economic recovery, Yao said.

At a press conference held by the Ministry of Foreign Affairs on November 10, spokesman Qin Gang said that the Chinese side has called on the United States to engage in a joint effort with China to properly solve the frictions and problems concerning bilateral economic and trade relations.

According to Qin, the China-U.S. economic and trade relationship is one of the major pillars in China-U.S. ties. Unprecedented progress has been made in recent years, allowing the two countries to become important trade partners.

The frictions and disputes need to be appropriately addressed through communication and consultation based on equality and mutual respect. If improperly handled, the trade friction could escalate, triggering an all-out trade war, Qin said.

Liu Xiaozhong, a researcher at the China Business Network Institute based in Shanghai, in an Internet article stated that under the background of the global economic crisis there are obvious differences of interest between China and the United States. What the United States hopes China to bring to the table is exactly the thing that China cannot provide in the short term. Also, what China hopes the United States to maintain, such as moderate deficits and stable U.S. dollar exchange rate, is what the United States cannot currently control.

Although trade frictions are worsening, many economists interviewed by Beijing Review are optimistic about the trade trend between China and the United States. Both countries, they agree, are of sound economic minds, so it is unlikely that a trade war, which will benefit neither side, will occur.

China-U.S. Trade Frictions in the Past Two Months

U.S. Actions

On September 9, the U.S. Department of Commerce decided to levy a tariff on Chinese oil country tubular goods. The tariff ranges from 10.9 percent to 30.6 percent.

On September 11, U.S. President Obama decided to levy three-year punitive tariffs on all imported car and light truck tires from China. The tariff rate is set at 35 percent for the first year, 30 percent for the second year and 25 percent for the third year.

On October 28, the U.S. Department of Commerce announced its intention to impose a tariff of 7.44 percent to 12.06 percent on $269 million worth steel grafting and steel strands imported from China.

On October 30, the United States International Trade Commission voted 6-0 in favor of an anti-dumping and countervailing investigation on Chinese seamless steel pipes. The U.S. petitioners requested a 98.37-percent anti-dumping duty against certain seamless steel pipes imported from China.

On November 3, the U.S. Department of Commerce set preliminary duties ranging from 2.02 percent to 437.73 percent on imported steel wire decking from China to offset government subsidies.

On November 4, the United States requested that the WTO establish a dispute settlement panel to rule on the exports of raw materials by China.

On November 5, the U.S. Department of Commerce announced its intention to impose a 36.53-percent duty on oil country tubular goods from 37 Chinese companies and a preliminary anti-dumping rate of 99.14 percent on products of some other Chinese companies. This is the biggest trade action against China-made products adopted by the United States.

On November 6, the United States International Trade Commission announced its preliminary decision to levy anti-dumping and countervailing tariffs on coated paper imported from China and Indonesia, as well as potassium pyrophosphate, monopotassium phosphate, potassium hydrogen phosphate imported from China.

China's Response

On September 13, China's MOFCOM announced it would be launching an anti-dumping and countervailing investigation on certain auto products and chicken products originating from the United States in accordance with Chinese laws and WTO rules.

On October 12, the MOFCOM announced plans to impose five-year anti-dumping tariffs on some polyamide-66 chips imported from the United States, Italy, Britain and France starting on October 13. The tariff rate is up to 37.5 percent.

On October 20, the MOFCOM said that China would require a security deposit on nylon 6, or polycaprolactam, imported from the United States, the European Union, Russia and Taiwan.

On November 6, the MOFCOM announced plans to launch an anti-dumping and countervailing investigation on cars and sport utility vehicles of 2.0 liter and above imported from the United States.