Commentary on Political Economy

Monday 1 November 2021

 Standing up to the trade bully: Australia just got a template for dealing with China

Stephen Bartholomeusz

7 - 9 minutes


    Business

    Markets

    Trade wars


Opinion


November 2, 2021 — 12.00pm


November 2, 2021 — 12.00pm


Last weekend the US and European Union struck a pact to restrict access to their markets for steel and aluminium from “countries like China.” Could that be that a foretaste of things to come?


The new metals alliance that was announced by Joe Biden and EU trade commissioner Valdis Dombrovskis on the sidelines of the G20 meeting in Rome ostensibly restricts access to their markets for “dirty” and dumped steel.

The US and EU are now far more aligned in tackling some of the more difficult issues related to China’s trade practices.


The US and EU are now far more aligned in tackling some of the more difficult issues related to China’s trade practices.Credit:Getty


It is clearly aimed at China, the world’s largest steel and aluminium producer – it accounts for nearly 60 per cent of global production of both metals – which has for decades been accused of flooding world markets with cheap and subsidised products.


Dombrovskis invited other “like-minded economies” to join the US and EU to address global over-capacity in the steel and aluminium sectors and restrict market access for “non-participants” who don’t meet the conditions for market orientation or the standards for low-carbon intensity products.


The US said it was working with the UK and Japan too, and referred to the need for like-minded countries to take collective action to address the root causes of market distortions and climate impacts of state subsidies and over-capacity.

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The new alliance between the US and EU came as they agreed a truce in their own disputes over the aluminium and steel tariffs imposed by the Trump administration on the EU’s exports to the US in 2018, ostensibly under the banner of national security.


While the tariffs remain, some volumes of EU metals will be allowed into the US duty-free, removing another source of the friction generated by Trump’s trade wars on everyone. Earlier disputes over aircraft subsidies have also been resolved.


The heat, once intense, has gone out of the trans-Atlantic trade issues and the US and EU are now far more aligned in tackling some of the more difficult issues related to China’s trade practices.


Another of those practices – the use of trade as a coercive tool for non-trade-related issues – was also aired last week when the World Trade Organisation agreed to examine China’s tariffs of up to 220 per cent on Australian wine.


Those tariffs were imposed (along with others on barley, lobsters, coal and other products) after Australia called for an international investigation of the origins of COVID-19, banned Huawei from participating in 5G rollouts and criticised China’s treatment of the Uighurs and Hong Kong.


    China’s unfair and abusive practices and Donald Trump’s misguided and MAGA-driven trade wars highlight how far the international trading system based on a philosophy of open markets – a system that helped turbo-charge China’s growth – has broken down and how ineffective the WTO has become in policing its rules.


Other countries, including the UK, Canada and New Zealand, are lining up as third parties in the dispute, which has essentially wiped out Australian wine exports to China because it encapsulates some of the core criticisms of China’s trade practices.


Last month the WTO completed a trade policy review of China – as much an assessment by China’s peers as an investigation by the WTO itself – that found, unlike the previous review in 2018 – deep dissatisfaction with China’s behaviours.


While the WTO’s summation was diplomatic (and was seized on by China as an endorsement of its policies) the review provoked scathing criticisms from, not just Australia or the US but the EU, Japan, the UK and Canada. They accused China of bullying and engaging in practices that were inconsistent with the commitments China made when it joined the WTO in 2001.


The bans on Australian and Canadian products (in Canada’s case for the detention of Huawei chief financial officer, Meng Wanzhou) were described by the Canadians as part of a pattern that demonstrated China’s “growing willingness to deploy economic coercive measures to block or otherwise hinder trade in response to political disagreements.”

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The US Charge d’Affaires at the WTO, David Bisbee, said the expectations when China joined the WTO – that it would dismantle policies and practices that were incompatible with an international trading system based on open market-oriented policies – had not been realised and it appeared China had no inclination to change.


China had used the imprimatur of WTO membership to become the world’s largest trader while doubling down on its state-led, non-market approach to trade, he said.


The UK implicitly criticised China for its treatment of the Uighurs, calling on it to ratify the International Labour Organisation’s conventions on forced labour. The EU targeted China’s “expansive” use of the concept of national security in its trade policies while Japan accused it of lacking transparency and distorting global steel markets with its over-capacity. South Korea complained about abuses in trademark registration processes while India was unhappy about China’s barriers to access to its markets for India’s agricultural products.


There were a number of criticisms of China’s self-designated status (allowed under WTO rules) as a developing country, which enables it to claim “special and differential treatment” on trade issues relative to developed economies. That was a particular bugbear of the Trump administration, given China’s prominence in world trade.


China now says it is willing to be “pragmatic” about its insistence that it is still entitled to claim that status, whatever that might mean.

China has for decades been accused of flooding world markets with cheap and subsidised products.


China has for decades been accused of flooding world markets with cheap and subsidised products.Credit:Bloomberg


China’s unfair and abusive practices and Donald Trump’s misguided and MAGA-driven trade wars highlight how far the international trading system based on a philosophy of open markets – a system that helped turbo-charge China’s growth – has broken down and how ineffective the WTO has become in policing its rules.


The US-EU deal on steel and aluminium, the support for Australia’s complaint to the WTO over the treatment of our wine industry and the depth and breadth of the criticism China’s trade practices attracted in the WTO review, however, perhaps provide an insight, or even a preview, of how China’s behaviours might be modified.

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China is insistent that any foreign regulator wanting to inspect the accounts of a Chinese company must obtain the approval of its own authorities.


Trump’s tariffs (which have been left in place by Joe Biden) don’t work. They hurt the US more than China.


There is now, however, a sufficient commonality of interest and real angst among China’s major trading partners across a range of issues – from state subsidies to the use of access to China’s markets as a weapon in non-traded issues, to human rights abuses – to use its own tactics against it.

China can maintain its state-planned and controlled economy and society. That is very much its own business and a matter for its own people to decide.


If, however, it wants access to the world’s major markets then, assuming the key western economies could agree a broad set of rules for engagement with China, whether within or outside the WTO, it would have to do so on terms that reflect a far more level and transparent playing field for trade and one in which there was no scope for using market access as a mechanism for coercion on non-trade matters.

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