Back to previous page


Post Most

Our one-sided trade war with China

By ,

Just how many American jobs have been lost to subsidized Chinese exports is unclear. Economist Robert Scott of the Economic Policy Institute, a liberal think tank, estimates the number at 2.8 million from 2001 to 2010. A study by three academic economists concludes that imports from China account for about a quarter of lost U.S. manufacturing jobs from 1990 to 2007; that’s almost 1 million jobs. These are both large declines, but they are only a modest fraction of America’s present jobs shortfall. The recession cost 8.8 million payroll jobs.

These numbers should frame our thinking about China’s economic policies. On the one hand, making the Chinese scapegoats for most of our economic problems is delusional. Their role in the financial crisis was modest. On the other hand, China’s predatory trade practices erode America’s industrial base and stymie the economic recovery. The Chinese do not believe in free trade or fair trade. They practice fixed trade — fixed to benefit them at others’ expense. What, if anything, can we do about that?

The measure targeting China’s currency practices that is now before the Senate is mostly symbolic. It would allow U.S. companies facing Chinese imports to cite the undervalued renminbi (RMB) as an illegal subsidy in petitioning the Commerce Department for relief. If Commerce agreed that imports were subsidized, it could impose “countervailing duties” that offset the subsidy.

Even if this becomes law — not certain — it wouldn’t work for two reasons. In 2010, our imports from China totaled $364 billion. (American exports to China were $86 billion, leaving a deficit of $278 billion.) To be effective, countervailing duties would need to apply to most Chinese imports, but in practice, companies bring cases only for individual products, affecting millions, not billions, of dollars. The process would be cumbersome and time-consuming.

Worse, China might protest any countervailing duties to the World Trade Organization, and it might win. WTO rules permit subsidies that are broad-based rather than those benefiting specific firms or industries, say lawyers. The undervalued RMB might pass muster. If so, China could then retaliate by imposing duties on U.S. exports to China.

Both the George W. Bush and Obama administrations have pushed China to let the RMB increase enough to reduce its huge export surpluses. Negotiations have failed. True, the Chinese did permit the RMB to rise beginning in July 2005 but only at a pace that, given productivity gains, didn’t much change their competitive advantage. The only way to get them to do more is to threaten an increase in U.S. tariffs of 25 percent or more, says the EPI’s Scott. The idea is to pressure China to revalue its currency. He’s right.

What’s at stake is not just the U.S. trade balance with China but the nature of the global trading system, as economist Arvind Subramanian of the Peterson Institute shows in his book “Eclipse: Living in the Shadow of China’s Economic Dominance.” Since World War II, the United States has presided over an open, non-discriminatory global trading system. It’s been a big success: From 1950 to 2009, world exports increased by a factor of 26.

But, writes Subramanian, China might supplant this system with one focused on its needs. It might pursue preferential access to needed raw materials (oil, grains, minerals); it might discriminate in favor of its friends and against adversaries; it might subsidize its exports and seek protected markets for them. It already does all these things — and as its power grows, it may do more.

And that power will grow. By Subramanian’s calculations, the U.S. economy is now 50 percent larger than China’s; in 20 years, that will roughly reverse. From 1990 to 2010, China’s share of global trade rose from 1.6 percent to 9.8 percent. By 2030, that will reach 15 percent, twice the American share.

No one should relish threatening China with a 25 percent tariff. It would be illegal under existing WTO rules; to save the postwar trading system, we’d have to attack it. This would risk an all-out trade war just when the world economy is already tottering. There’s no guarantee that China would respond as hoped. Initially, it might retaliate. Cooperation on other issues would collapse. Prices of Chinese exports (consumer electronics, shoes) that we barely make would probably rise. Other countries might adopt protective measures.

All this is dangerous stuff. The policy’s only recommendation is that it might be slightly better than the alternative: condoning China’s ongoing assault on our industry. In the past, it’s been clothes and furniture; in the future, it will be cars and commercial aircraft. China’s policies assail other countries, too, and its trade surpluses destabilize the global economy. There’s already a trade war between them and us; but only one side is fighting.

More from PostOpinions:

Milbank: Could Occupy Wall Street save Obama?

Hoagland: Dangerous fallout from Fukushima

Allison: Calling Iran’s bluff

Rubin: Romney’s foreign policy vision

© The Washington Post Company