Trade wars in no one’s interest

| April 6, 2018

Dr. Sir Ronald Sanders former Caribbean diplomat

The Government of the People’s Republic of China wrote to the Chairperson of the Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) on April 4, registering a dispute with the Government of United States of America over duties that would be applied by the U.S. only to China’s products.  

The Chinese action was a response to the publication on April 3 of a list of products by the U.S. that would attract an additional ad valorem duty of 25 percent on entry into the U.S. market.  According to China’s submission, the U.S. measures “appear to be inconsistent with the relevant provisions of WTO covered agreements”, including the General Agreement on Tariffs and Trade. 

The first step in this DSB process is “consultation” between China and the U.S. to determine whether the dispute could be settled by discussion between them.  If the consultation fails, a long process follows of trying to agree on an Arbitration Panel, hearings by the Panel and probably appeals against the Panel’s decision if either of the parties find it unacceptable. 

During all this time, the U.S. duties on the Chinese goods would remain, harming their competitiveness in the U.S. market and driving up the price of these goods to the U.S. consumer.

The U.S. Government claims that its decision to impose tariffs on Chinese goods comes after years of failed efforts by previous administrations to get Beijing to change its behaviour which unfairly advantages China’s goods and services.

While the Chinese government took the formal step of registering a trade dispute with the U.S. over the proposed imposition of tariffs on its products, it also retaliated by announcing a list of U.S. exports worth about $50 billion that it plans to target with a new set of duties.  So, despite the WTO mechanism, set-up specifically for settling trade disputes within an internationally agreed framework, the trade war between the U.S. and China is escalating.

During his campaign for election, and since his assumption of office, President Trump has blamed unfair Chinese trade practices for the U.S. trade deficit with China, which has now reached $375 billion. In response, the Chinese have contended that U.S. fiscal policies and export controls are mostly to blame. 

Mark Zandi, chief economist at Moody’s Analytics

Several countries, mostly European, have also been saying that China’s trade practices are unfair, but none of them has gone as far as the U.S. in unilaterally imposing tariffs that have provoked a tit-for-tat reaction from China.  Even the Business Roundtable in the US has said that the U.S. administration “should work with U.S. allies on an approach that advances meaningful reform in China without imposing significant harm on America’s economy.” 

Clearly, they recognise three things: first, the rise in costs of Chinese imports will push-up the cost of living for the U.S. as well as affect the viability of some U.S. manufacturers who rely on less costly inputs available from China; second, U.S. farmers will suffer from the retaliatory tariffs applied to their goods entering the Chinese market; and third, as Mark Zandi, chief economist at Moody’s Analytics, has pointed out, the U.S.-China tariffs war could cost the US almost 190,000 jobs.

Eventually, both the U.S. and Chinese economies will suffer.  So, too will the rest of the world.  For as these two giant economies decline, their capacity to serve as engines of growth for the global economy will also wane, causing an international slump.  Small developing countries will be the first to feel the pain.

What is also significant about all this for small countries is that the WTO machinery is being side-lined.  It is significant because as the WTO is shunted aside in favour of bilateral trade agreements with no international arbitration, small countries will be disadvantaged in trade negotiations with more powerful nations and they will have no independent machinery to which to appeal in the event of a dispute.

African, Caribbean and Pacific (ACP) countries have already suffered from agreeing a so-called Economic Partnership Agreement (EPA) with the 28 European Union (EU) countries outside of WTO agreements.  The result is that EU countries gained much more than the limits set by the WTO and the ACP countries have no resort to an independent, international mechanism for arbitrating disputes. 

Alongside the U.S.-China trade war, the other trade issue that should be of concern to Caribbean states is the future of the North American Free Trade Agreement (NAFTA) between the U.S., Canada and Mexico.  At the insistence of the U.S., discussions have been going-on between these three countries to change the terms of the Agreement.  Each of the three countries is a trading partner of the Caribbean, although the Caribbean has a greater interest in the prosperity of the U.S. and Canadian economies, given that they are primary sources of tourism and remittances as well as markets for Caribbean goods.

An important aspect of the NAFTA discussions has been arbitration of disputes.  The U.S. favours bilateral discussion instead of the present mechanism of an impartial tribunal.  But, as small countries, such as Antigua and Barbuda, have learned to their detriment, they cannot hope for justice in a bilateral negotiation with a powerful country like the U.S. whose agents can choose not to honour obligations, and even not to negotiate.

The WTO system is imperfect.  It cannot enforce judgements arising from a trade dispute.  But it can provide impartial hearing and judgement.  And, as imperfect as it is in enforcing judgements, it is far better than leaving small states to the mercy, or lack of it, of the powerful.

Trade wars, such as the ones the world now witnesses, creates instability and decline; meaningful discussion of unfair trade practices in a global framework, where culprits are made to change their behaviour by the weight of collective international negotiation and agreement, is far more constructive.

(The writer is Antigua and Barbuda’s Ambassador to the United States and to the OAS.  He is also a Senior Fellow at the Institute of Commonwealth Studies, University of London and Massey College in the University of Toronto)

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Category: African Caribbean, Business, Culture & Society, Politics

About the Author (Author Profile)

Sir Ronald Sanders is Antigua and Barbuda’s Ambassador to the United States and the OAS. He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and Massey College in the University of Toronto. The views expressed are his own

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