U.S. Protectionism Needs Curbing

A few days ago, the U.S. government appealed to the WTO against China, claiming that the Chinese government provides subsidies to its exporting industry. This is just a part of a series in recent days. As the impact of the financial crisis gets worse, Western protectionism grows higher. In the meantime, it also casts shadows over U.S.-China trade relations, which need to be handled carefully.

Earlier in the month, the fifth U.S.-China strategic economic dialogue reached some progress on trade. The two sides agreed to allot $20 billion from their export-import banks as trade finance, that is $12 billion from the U.S. and $8 from China, hoping to stimulate trade with $38 billion of credits. This policy is indeed timely. The influence of the credit crunch has already stalled normal business activities, shipping and logistic work. To provide another option such as trade finance would accelerate the recovery, which is the ‘tangible’ achievement from the dialogue, proving that cooperation between America and China might help the two countries get through the difficulties and carry out a win-win solution.

U.S.-China Anti-Protectionism

Under the deteriorated global economy, the consensus of the two sides is to oppose protectionism, promote trade, and open investment. They also pledge to reach a reciprocal trade agreement, in order to facilitate and secure investment. This is a grand ideal that corresponds to the anti-protectionism decision of the G20 summit. However, it is also an ‘intangible’ achievement that only shows the long term goal, but lacking in practical programming on hand. In addition, the U.S. might act in the contrary manner, escalating its trade shield.

In fact, we might be too optimistic about recent U.S.-China trade relations. The international society was already concerned about the pro-protectionism Obama administration. A commentator of CATO Institution indicated that President-elect Obama and the Congress might be the most free trade-skeptic combination since 1930. Not a few Democratic senators had shown their opposition to free trade and globalization. They targeted NAFTA, calling for renegotiation. Some of them even want to revoke the bilateral free trade agreements with Korea, the Republic of Panama and Colombia, which were settled by the Bush administration and waiting for the approval of the Congress. With China, the Congress also holds a hard-line attitude. Bills concerning urging a rise in the value of RMD are heaped up. During his presidential campaign, Mr. Obama had responded some of the above demands, including renegotiating NAFTA and remaining stern to the demand of rising RMD’s value. This kind of stance helped many Democratic senators obtain victories, by arguing [against] the free trade position of their rivals. In a nutshell, the ascendant ratio of anti-free trade Senators in the U.S. Congress has drawn international fret.

Public Opinion on Anti-globalization

Within the U.S., the thought of anti-globalization and increasing protection is built up by a certain level of public opinion. According to a survey completed this March, while 60 percent of Americans believe that globalization brings no benefits to the U.S. economy, only a quarter of them think contrarily that it would open new markets and create employment opportunities. Needless to say, once the global economy slid and unemployment rate soared in the following years, the trend of protectionism would surge and the government will be under greater political pressure. For the situation above, China has to get well prepared, not only taking flexible corresponding measures but also actively defending its rights. There are few points on which it needs to be cautious. First, America would press for rising RMD value. Second, measures of protection would be more varied and be used more intensively. The abuse of protection might be worse. Apart from common methods such as anti-dumping and anti-subsidy, setting quota limits might be the next trick. Thirdly, the U.S. would provide its industries with financial assistance by injecting capital, giving concessional loans and subsidies etc. Once this assistance becomes the trigger of unfair competition, the Chinese government should appeal to the WTO as well. For those situations above, China should be alert to the developments and able to employ corresponding strategies in time.