The US administration is trying to decouple its economy from China’s. And while there might be some arguments in favor of that position, the treat of decoupling for the world economy is huge, says international trade expert Harry Broadman in Forbes (here in pdf-format). Down the line, the US and global economies will be worse off, he warns.
There are two putative goals of the current US administration for proactive policy “decoupling” between the U.S. and China. The first is to reorient U.S. firms’ supply chains away from China to U.S. sources, which would have the effect of helping to achieve President Trump’s principal trade policy goal with China: elimination of the bilateral U.S.-China merchandise trade deficit. The second is to prevent China’s further progress in the global race for superiority in innovation and market dominance in advanced technology products and services.
It is not up for debate that China has both engaged in trade policies that are not WTO-compliant ever since its accession to the WTO in 2001 as well as in the piracy of intellectual property and technology decades before it joined the WTO and still does. Yet, not only will the U.S. goal of forced bilateral decoupling between the two largest economies fail in a marketplace whose structure is now inherently globalized, but the policy tools being waged by the U.S., combined with its go-it-alone approach to try to contain and isolate China both economically and technologically, will not induce the changes Washington seeks from Beijing.
Indeed, there is an appreciable risk that the outcomes produced by the U.S. strategy of proactive decoupling will serve to only make the U.S. worse off and jeopardize global economic growth. There are far more effective ways to deal with China’s conduct and to generate outcomes that will more greatly benefit both the U.S. population and the world community…
What to do? Let’s tell it like it is: China is knowingly in broad violation of the legal WTO commitments it signed in 2001.
The world community has a fundamental choice before it. If the globe’s second largest economy cannot live up to its WTO commitments, then let’s all be grownups and take collective action and agree that China shall either fundamentally renegotiate its WTO membership or be removed from that system. The result? Beijing will then not get preferential tariff and other favorable treatments that come with WTO accession.
This is not a pejorative view of China—by any means. Like every nation, the Chinese have the absolute full right to have whatever type of economy they wish. But no country can have its cake and eat it too. Fundamentally, this is a values statement: the goals of Xi Jinping and the Chinese Communist Party, which he leads, are not those shared by the U.S. and many other nations.
If on the other hand, we want to close our eyes about China staying in the WTO, then the only other choice is to terminate the WTO all together since it has zero credibility. However, here is where things become dismal. The Trump administration is itself operating outside the WTO. Indeed, the current occupant of the Oval Office seemingly would quite welcome the demise of the WTO.
Without question, that is an outcome the overwhelming number of the world of nations will deeply regret. As a result, one should be hopeful this would have little chance of occurring.
The question then is: Who will step up to the plate and spur the collective action the world so deeply needs now?
Much more in Forbes. (here in pdf-format)
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