But U.S. experts said Beijing did not appear intent on triggering an all-out trade war. That would be an unappealing prospect at a time when China’s economy is showing signs of slowing down.
Rather than resorting to retaliatory measures, China’s Ministry of Commerce on Friday asked for WTO consultations, the first stage of a formal dispute process. The products covered are worth a total of $7.29 billion, a substantial figure for the companies involved but only a small fraction of the trade between the two nations.
“From the broad strategic standpoint, it’s more of the tit-for-tatting that goes on with the U.S. and China in these trade barrier disputes,” said C. Fred Bergsten, head of the Peterson Institute. “I don’t think it’s anything like a trade war. At most, it is a skirmish over products that make up a tiny, tiny share of the trade between the two countries.”
Separately, the Treasury Department said China “is gradually allowing necessary external adjustments to take place” to increase the value of its currency, whose artificially depressed value has given China a competitive edge, many companies say. In its regular report on international exchange rates, the Treasury cited the decline in China’s current account surplus and the “real appreciation” of the Chinese currency since June 2010.
“Nevertheless,” the report added, “the underlying factors that distort China’s economy and constrain global demand growth remain.” It said that while China’s current account surplus had narrowed, it remained too high.
Sen. Sherrod Brown (D-Ohio) said Treasury’s failure to brand China a currency manipulator gave China “a free pass.” That designation would require a broad tariff on Chinese goods.
The Treasury Department said China needs to follow through on commitments it made at the strategic and economic dialogue with top U.S. officials in Beijing this month. At those talks, the Treasury report said, “China stated that it intends to cut import tariffs on certain consumer goods this year, and expand the coverage, to all regions and sectors, of its pilot program to reduce the tax burden on services in order to accelerate development of the services sector.”
Trade issues remain a source of friction. In a high-profile case involving solar panels, the Commerce Department imposed small duties, known as countervailing duties, to offset Chinese subsidies, and separately imposed 31 percent tariffs to counter what it called the dumping of cheap Chinese solar panels on the U.S. market.
“The U.S. behavior abused trade remedy practices and harmed the legal rights and interests of Chinese companies,” the Commerce Ministry said in a statement
attributed to spokesman Shen Danyang. “The Chinese government opposes abuse of WTO rules and trade protectionism explicitly and consistently.” On Thursday, the ministry ruled that the U.S. government had provided improper subsidies for six renewable-energy projects.
A central part of the subsidy debate is how to treat state-owned enterprises, an issue in earlier cases over coated paper, steel pipe and sacks woven with laminated plastic, said Chris Cloutier, a partner at the law firm King & Spalding.
China has argued that only government agencies, not state-owned firms, are capable of granting subsidies. The WTO ruled in 2011 that majority ownership by the government was not enough to prove that state-owned firms had the power to subsidize other companies by selling cheap inputs. The WTO said U.S. firms had to show that the Chinese state-owned enterprises were “vested with governmental authority.”
On May 18, the Commerce Department issued a rebuttal, arguing that Chinese state-owned firms have the power to subsidize goods not only because of the level of state ownership, but also because of the degree of Communist Party control and Beijing’s own statements about maintaining control over strategic industries.
Timothy Brightbill, a lawyer at Wiley Rein representing a group of solar-panel manufacturers who won the imposition of provisional tariffs on Chinese solar-panel makers, said,“our practices and procedures on subsidy cases are consistent with WTO rules. The same cannot be said for China.” He said “China’s state-owned enterprises provide a variety of goods and services, including raw materials like steel, aluminum and polysilicon, at subsidized and discounted rates.”
Of China’s filing at the WTO, Brightbill said “this is basically a broadside against the Commerce Department’s practices in general, and in particular our procedures for using the trade laws to deal with China’s state-owned enterprises, which distort the global marketplace on all products — from steel to solar panels to services.”
“What makes this very complicated is the degree of internationalization of these products,” said Edward Steinfeld, an economics professor at the Massachusetts Institute of Technology. “It is not the U.S. versus Chinese solar industry. On virtually every Chinese solar panel there are American components.”