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World Trade Organisation (WTO)

Leading WTO role for China as it seeks to ride trade storm

US tariffs have given Beijing the chance to join up with other nations against Washington and position itself as a champion of free trade

PUBLISHED : Friday, 13 July, 2018, 6:10am
UPDATED : Wednesday, 01 August, 2018, 4:04pm

The United States’ threat of tariffs on another US$200 billion worth of Chinese exports has intensified the focus on China’s strategy for defending a system central to its success and ensuring that it does not become isolated in a trade war.

Beijing’s worst nightmare is that trading powers such as the European Union and Japan take sides with the US to collectively force China to open up its market.

That would put it in a very difficult position, and concerns about such scenarios have prompted Beijing to rally support for defence of the existing world trade order.

US tariffs on Chinese exports will cause short-term pain and probably severe damage to the Chinese economy.

But tariffs against allies and rivals alike, and America’s undermining of the World Trade Organisation, has handed Beijing an opening to make common cause against the US with other trade partners and position itself as a champion of free trade.

To be sure, some partners like the EU and powerful member nations such as Germany may be vigorously pursuing grievances of their own with Chinese trade and investment policy.

But at the same time they are not on side with US unilateralism, especially with President Donald Trump turning up the pressure on Nato partners to contribute more to the costs of their defence.

China has seen the disquiet of American allies as an opportunity, for example by setting up a working group with the EU to revamp dispute-settling procedures at the WTO.

By all accounts, at this stage, Brussels has balked at clearly taking sides with China by forming an alliance to speak out against Trump’s policies.

But Beijing is pressing on to demonstrate sincerity about opening up its economy, for example with a tentative deal to let German chemical giant BASF build and take 100 per cent ownership of a huge chemical complex in Guangdong.

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German Chancellor Angela Merkel said this shows China’s market opening is not just talk, but action – in positive contrast with US Secretary of State Mike Pompeo’s recent ridicule of Beijing’s promises of opening up as “a joke”.

As trade tensions have risen, China has moved to strengthen existing ties, lowering trade barriers to developing countries and opening up more sectors to foreign investors.

With China now occupying a pivotal role in the global economic chain, continued US attacks on it will result in increasing collateral damage to other countries, exacerbated by underlying weakness in the global economic recovery.

America’s current economic strength and its leadership position cannot be maintained in isolation from other economies.

US unilateralism is therefore not good for anyone, which gives China confidence it can ride out the storm by leading the defence of multilateralism under the WTO.