Trade War

There are no Winners

Du Haitao & Lin Lili

China's counter measures in the trade war are justifiable and legitimate, experts pointed out, believing that such response aims to safeguard China's core interests and fundamental interests of its people, as well as to protect the principle of free trade and the multilateral trading system.

"The Chinese side insisted on not firing the first shot, and was forced into taking reciprocal counter measures after the US first started the trade war", China's Ministry of Commerce stressed in its recent statement. China declares determination to guard multilateral trading system.

"China was forced into taking reciprocal counter measures, which indicated its strong resolution to oppose unilateralism, support the multilateral trading system, and protect the authoritativeness and effectiveness of the system", said Zhang Yansheng, chief researcher with the China Center for International Economic Exchanges (CCIEC).

With these vibrant activities, free trade ensured by multilateral trading system is flourishing. Based on the exchanges, ordinary people in developed countries have enjoyed affordable and good quality products when the developed countries upgraded the industries. In the meantime, the economies in the developing countries are booming while life expectancy, infant survival rate, adult literacy rate have all gone up greatly. Take India as an example, in the waves of globalisation, the economic growth has been impressive, and the size of economy has kept expanding. Moreover, the number of people living under poverty line has reduced by 260 million and the percentage had gone down from 45% in 1994 to 12.4% in 2015.

From General Agreement on Tariffs and Trade (GATT) in 1948 to WTO in 1995, the establishment of rules-based, transparent, non-discriminatory and open multilateral trading system embodied in the WTO has taken difficult negotiation and compromises. With countries all over the world working together, the multilateral trading systems have worked well for 70 years, resulting in less trade barriers and fewer trade frictions. Like water and air, things that we took for granted in our lives, having such trading system seems natural. Only when we are at the risk of losing such functioning multilateral trading system and free trade, can we truly understand how indispensable it is and what our lives would become without it. Rome wasn't built in a day, but can be destroyed in one day. To tear down such delicate system, all you need is a disruptive player.

Recently, we have witnessed the United States announcing the tariff recommendations under its Section 232 and Section 301 investigations. Entirely based on domestic law, The US has decided to impose additional tariffs on various import goods. In March 2018, on national security grounds, US has adopted tariffs of 25% and 10% on import steel and Aluminum products respectively. At July 6th, the US has imposed additional 25% tariffs on $34 billion worth of Chinese goods. More-over, US threatens to consider imposing tariffs on another $500 billion worth of Chinese goods. As one of the countries enjoying surplus with the US, India has also become a victim of the US unilateral, protectionist trade practices. Extra tariffs have been imposed to Indian steel and aluminum to the US as well. Moreover, with more and more stringent H1B visa standard, fewer experts in India can work in the US. Oil import cost in India have been raised by the US sanctions on the other country as well.

Regarding the US violating World Trade Organisation rules and igniting the largest trade war in economic history, China has clearly expressed our stance. It's impolite not to make a return for what one receives. To defend the nation's core interests and the people's interests we are forced to fight back and impose counter tariffs on US products with equal force and scale. Likewise, India has also decided to impose additional tariffs on $240 million worth of imports from the US, in retaliation against the tariffs imposed on Indian steel and aluminum exporting to the US.

There is an old Chinese proverb that, in the open sea, if the boat capsizes, no one is safe from drowning. There are no winners in a trade war, only collateral damages. It threatens global supply chains and value chains, triggers global market turmoil and stalls the global economic recovery. This will not only disrupt the environment for Indian economic development, resulting fluctuations in currencies and oil and other commodities, but also undermine Made in India initiative, and slow down the taking off of Indian Economy. As Minister of Commerce and Industry of India, Mr Suresh Prabhu puts, "The very existence of WTO is now under threat. But, if there is no WTO, all countries will face problems. There will be chaos".

At present, economic globalisation experiences, twists and turns, and unilateralism and protectionism are on the rise. China and India have continuously promoted and defended the multilateral trading system. We have the responsibility to ensure the smooth function of multilateral trading system embodied in the WTO and free trade. It is also in the interest of our two countries to defend multilateral trading system and free trade. In President Xijinping and Prime Minister Modi's meetings in Wuhan and Qingdao, the two leaders have agreed to promote the construction of an open world economy, support the multilateral trading system, and conduct more positive international cooperation to jointly cope with global challenges. Recendy, China has published the White Paper "China and the World Trade Organization". In this white paper, while looking back at our 17 years' development and progress since joining WTO, we have further expressed our determination in deepening reform and opening-up., supporting the improvement of multilateral trading system, and pushing forward the development of global free trade. We look forward to working with India and building consensus to support the development of multilateral trading system and free trade, and to make the international political and economic order more just and equitable.

China's countermeasures start from its determination to safeguard its core national interests and the fundamental interests of its people, Zhang said, adding that against the backdrop of intertwined world economy, the US is simply adopting a bullying practice with unilateralism and protectionism by initiating the trade war.

The US is seemingly trying to reduce trade deficits under the banner of unbalanced trade, but it indeed hopes to comprehensively contain the development of other countries, the expert unmasked the veil of the US.

Statistics showed that nearly 60 percent of the products on the $34 billion tariff list of the US are produced by foreign enterprises in China, and a considerable part of them comes from the US itself.

In light of this, by unilaterally initiating the trade war, the US side is firing at the whole world as well as itsel, said Zhang, explaining that such irrational act is extremely dangerous and will lead to a lose-lose situation.

The multilateralism, free trade and rules-based order are pit against unilateralism, protectionism and power games, researcher Sun Jie from the Institute of World Economics and Politics under Chinese Academy of Social Sciences pointed out.

Sun believes that the core of the trade war lies in the intention of the US to abandon the existing multilateral trading system and highlight the so-called fairness and reciprocal opening in bilateral trade relations, so that it will be able to increase tariffs on a unilateral basis.

Such practice has brought huge impacts and destruction to the current global trade system, he warned.
"Sustainable and win-win results never come along with unilateral act that goes against multilateral system or global governing principles," the researcher noted.

China's reciprocal counter-measures after the irrational move of the US, as well as its complaint of such unilateral practice to the World Trade Organisation (WTO) are totally in line with the fundamental principles and spirit of the international law, he stressed.

China is supported by international morality, Sun said, adding that the international society should work together to resolutely oppose unilateralism and protectionism.

An opener China will benefit world more.

China will never back down from the trade war, said Chen Wenling, chief economist of the CCIEC.

It will work with other countries to safeguard the global free trade system, multilateral mechanism, and international rules, she noted, adding that the country will focus on its own issues and firmly carry forward reform and opening up.

Chen remarked that the US' denial of the globally accepted multilateral trading system is a willful violation of the international rules and order, putting negative impacts on global trade system, as well as the global industrial, supply and value chains.

In a belief that such movement of the US will not only hurt China, but also the US and the world economy at large, Chen called on the world to firmly oppose the bullying practices of the US and protect the principle of free trade and the multilateral trade system.

China is the world's only country that has established a whole industrial chain. It has a huge domestic market and development potential, thus enjoying a larger elbow room when facing with external impacts, said Bai Ming, deputy director of the International Market Research Institute under the Ministry of Commerce.

"The US will finally expose its weaknesses and problems as time goes by, and the country will gradually get stung by China's countermeasures," Bai said, explaining that China has always been a country that is able to bounce high when pressed by external forces.

China has already showcased its resolution to further open up, which can be evidenced by the slew of new measures regarding opening up in just four days from June 26 to July 1.

The country also issued two new negative lists: one that applies to the free trade zones and another for the rest of the country, largely lowering the market access.

In addition, it rolled out new regulation for foreign enterprises registration, allowing simultaneous online documentation and commercial registration for overseas companies coming to China. Besides, it also substantially lowered the tariffs of wholesale automobiles, auto parts, cosmetics and aquatic products.

"A more open China will definitely bring more opportunities for the world," Bai noted.

[courtesy: News From China, July, 2018, originally published in People's Daily, July 17, 2018]

Vol. 51, No.12, Sep 23 - 29, 2018