Question 21N.2.SL.TZ0.1a.i

China and global trade

1. On 15 January 2020, the United States (US) and China signed a deal that reduced some tariffs and required China to buy more from US producers. This was a first step towards resolving a trade war, which had reduced bilateral trade flows by 9 % and investment flows by 60 %. However, critics argued that the deal left most tariffs unchanged and did not deal with deeper disagreements.
   
   
2. The US, the European Union (EU) and Japan are calling for tougher World Trade Organization (WTO) rules on government support for firms that manufacture items such as steel or solar panels. The support, which is often in the form of subsidies, has allegedly undermined competing firms overseas, either by promoting exports or by decreasing imports, and therefore distorted global trade. Other governments also give subsidies, but there are claims that China uses them more extensively.
   
   
3. The proposed WTO rule change would require governments to prove that subsidies do not give domestic firms an unfair advantage over foreign firms and that they do not lead to excess supply in the global market. If the rules are implemented, the WTO may regain some of the authority that it has lost in recent years.
   
   
4. One of the US government’s goals when imposing huge tariffs on Chinese-made goods was to bring back manufacturing jobs to the US. Therefore, despite the new deal, the 25 % tariff on Chinese-made furniture will stay. As a result, many US furniture firms that had used overseas factories to make their US company-branded products have reduced their imports of Chinese-made furniture.
   
   
5. Meanwhile, Vietnam, Cambodia and Bangladesh are benefitting because US manufacturers of wood furniture are setting up factories there. Therefore, some other US producers are asking for the tariff on Chinese-made wooden furniture to apply to all wooden furniture imported into the US, regardless of where it is manufactured.
   
   
6. China is becoming less dominant as an exporter and more integrated into the global trading system. Its current account surplus was over 10 % of gross domestic product (GDP) in 2007, but it declined to just 0.4 % in 2018. Chinese producers are increasingly buying raw materials and other inputs from overseas producers. Although most electronic devices sold in the US are assembled in China, Chinese firms are often dependent on foreign suppliers. If the US and China tried to be less interdependent, it would take more than 10 years for China to become self-sufficient in the production of computer semiconductors and for the US to shift to other suppliers of electronic devices.

[Source: China Economic Review, 2020. Japan, the EU and the US target China with WTO rule change proposal [online]
Available at: https://chinaeconomicreview.com/japan-the-eu-and-the-us-target-china-with-wto-rule-change-proposal/
[Accessed 29 September 2020] Source adapted.

Sasso, M., 2020. U.S. Furniture Industry Eyes Cambodia as Vietnam’s Wages Rise [online] Available at: https://www.
bloomberg.com/news/articles/2020-01-08/u-s-furniture-industry-eyes-cambodia-as-vietnam-s-wages-rise [Accessed
29 September 2020] Used with permission of Bloomberg L.P. Copyright © 2022. All rights reserved. Source adapted.

The Economist, 2020. Don’t be fooled by the trade deal between America and China
https://www.economist.com/leaders/2020/01/02/dont-be-fooled-by-the-trade-deal-between-america-and-china
[Accessed 29 September 2020] Source adapted.]