Inside Out | Market economy debate really about anti-dumping shenanigans

As if China and the US did not have enough issues to squabble about, a new and potentially angry trade dispute surfaced between them last week – all about whether or not China can be regarded as a market economy.

As with most international trade disputes, at first sight this looks technical and tedious. But scratch the surface, and it becomes fascinating. At least, for sad trade policy specimens like me. Everything goes back to China’s bad old Maoist days, and the liberalisation process started by Deng Xiaoping, leading eventually to China joining the World Trade Organisation in 2001.

Back then, China was quite properly seen as a centrally planned economy that danced to the Communist Party’s tune. As far as the democratic open markets of the West were concerned, proper price competition did not exist. Prices were fixed by the party without regard for the true cost of manufacture.

This was of no concern to us while China was a market cut off from the rest of the world, but when it started competing in international markets to sell everything from shrimps to high-speed trains and wind turbines, the pricing of Chinese products became a matter of serious concern. For this reason China was marked as a “non-market economy”, along with the Soviet economies and pariahs like Vietnam.

If you were a “non-market economy” it was taken as given that your exports were arbitrarily priced, depending on politically motivated decisions to subsidise exports in order to grab market share in foreign markets.

Remember rule No 1 of international trade: every domestic company is led by principled, ethical, honourable bosses who compete fairly by the rules of international trade; by contrast every foreign company is led by conniving, untrustworthy cheats who happily bend or break trade rules if that means they can undercut plucky local companies.