Opinion | Don’t just blame Trump or China for this trade war
There are problems galore with global trade regulations, to the point that we now have an architecture that is no longer perceived as capable of delivering mutually beneficial trade
In a significant shift in American trade policy, the proposed Fair and Reciprocal Tariff Act would allow the US president to raise tariffs without congressional consent and bypass international rules.
To be clear, there are problems galore with global trade regulations. We now have a trade architecture that is no longer perceived as capable of delivering mutually beneficial trade, and vulnerable to be gamed by powerful players smart enough to use its outdated provisions to their advantage. In that sense, the Trump administration is not the cause of the current dysfunction in the global trade system, it is a symptom. But the US administration’s approach to these shortcomings is no less broken, and is unlikely to help in any way.
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The tariffs now being imposed on China, based on US concerns about intellectual property rights, illustrate the structural weaknesses in the current trade architecture. US trade officials have essentially conceded that at least some of their complaints against China’s intellectual property rights practices are not really violations of the WTO. This doesn’t mean that the US complaints are baseless and that China’s practices are not discriminatory. Quite the opposite. If one starts with the proposition that the rules of international trade should foster open commerce and competition across borders, and minimise or eliminate practices that put foreign companies at a disadvantage, then China’s policies would have to be regarded as contrary to that spirit and counter to the overarching objective of a rules-based trade system.
US-China trade war: bad for business is just the beginning
The fact however that many of these practices do not violate specific WTO rules highlights the extent to which the organisation has failed to keep pace with the policies that regulate trade. Under the existing rules of trade, a variety of discriminatory and even predatory practices either fall under “grey areas” of the WTO that are difficult to enforce, or in areas that are left entirely uncovered by the global trade referee, giving countries wide berth to distort trade.
Take intellectual property. Many of China’s practices are arguably in technical compliance with its WTO obligations but are implemented in ways that subvert the intention of the provision. For example, Section 7(3) of China’s Protocol of Accession to the WTO requires China to “ensure that … any means of approval for importation or investment … is not conditioned on … the transfer of technology”. Taken at face value, this seem entirely clear. However, it leaves sufficient scope for government officials to utilise the variety of levers at their disposal to exert very strong “encouragement” to multinational corporations to transfer technology.
Foreign companies wishing to do business in China are required to obtain various licences that are administered by non-transparent and highly discretionary government regulatory bodies, which essentially hold the “keys to the kingdom”. Not surprisingly, many multinationals evaluate “requests” or “suggestions” for technology transfer in light of these stark regulatory realities, and cave in.
