The US Is to Blame for “The Digression of China’s Trade Liberalization”

On June 12 the World Trade Organization, at its headquarters Geneva, started the fourth round of hearings on China’s trade policies. During the hearing, the U.S. Ambassador to the WTO, Mike Punk, said that China had shown two signs of its accession to the WTO in 2001: trade liberalization and economic reform. However, China is digressing from its liberalization direction nowadays. (June 13 Zaobao.com)

Whether China’s trade liberalization is digressing is another matter; the countries which attended the hearing all had different opinions. Nonetheless, the U.S. representative accused China of digressing from trade liberalization based on a long-established reason, which originated from President Obama’s State of the Union address on January 24. In the address, President Obama declared that the U.S. government would increase pressure on national imports to the U.S. including those from China (see Global Times, January 25, 2012). Looking back at the half-year course of Sino-U.S. trade frictions, it is not difficult to see the core of the issue: to keep putting pressure on China. One of the most prominent of these pressures was that the U.S. set up a special trade enforcement unit to deal with trade frictions following Obama’s instructions. Today, the unit not only performs its duties in the U.S. but also has extended its involvement into China. On May 17, the U.S. Department of Commerce announced the preliminary ruling of the anti-dumping investigations against China’s solar manufacturers. The Chinese manufacturers that responded to the allegation will be charged with a 21.22 percent tariff, those who did not will be charged with a punitive tariff of 250 percent. Accordingly, it is, the highest tariff that Chinese companies have ever faced to date. (See the China News Agency, May 17, 2012).

The U.S. government’s action of imposing a historically high tariff on the Chinese clean energy industry is meant to block Chinese clean energy products from entering the U.S. The excuse given by the U.S. authorities was that China’s subsidies for solar panel manufacturers have resulted in unfair competition.

If we only look at the amount of energy subsidies, the U.S. seems to outperform most nations. Records show that currently, including clean energy, the U.S. has as many as 2,300 subsidy programs. I visited the website of the U.S. Department of Energy and instantly saw a list of energy-subsidy information. For instance, on September 1, 2009, the U.S. Department of Energy claimed that after the end of the tax credit refund measures, it expected to have 5,000 renewable energy projects to receive government cash subsidies,

The U.S. Department of Energy handles, on average, $125 million worth of subsidy applications per week. At that pace, the amount of subsidy will soon exceed the Congressional budget of $3 billion. In 2009, the U.S. passed the Recovery Reinvestment Act, which included subsidies for American renewable energy, energy profit and smart grids. Amongst these, the subsidies for renewable energy was $25.2 billion. On August 16, 2010, the U.S. Energy Efficiency and Renewable Energy Department decided a six month validation of the transitional provisions, and required solar projects that applied for subsidies to use American chips. On January 8, 2010, President Obama announced a $2.3 billion tax incentive support for the green energy manufacturing industry. So if the U.S. is the first to implement policies of large subsidies for clean energy, why cannot other countries, including China, learn from the U.S. and subsidize its enterprises a little? Why not? If America is the only one allowed to use subsidies for clean energy and prohibits other countries from learning from it, isn’t this exactly the kind of behavior described by a Chinese idiom: “One may start a fire while the other can not even light a candle”?

Clean energy needs subsidy, which is self-evident. It is commonly known that the U.S. has been strongly promoting climate emission reduction and advocating clean energy as the most effective approach to emission reduction. China is a big country with many responsibilities; it made a solemn commitment at the Copenhagen Conference to complete the 11th-Five Year Emission Reduction Plan before 2010. An important approach to achieving this goal is to promote energy generation from biomass, hydropower, wind power, solar power and nuclear power. When China’s clean energy industry is developed, it will not only ensure the success of emission reduction in China but also provide a strong support for global emission reduction, which in itself is a good thing. The U.S. “Double Anti-Dumping [countervailing duties (to offset the subsidies) and tariffs (to discourage dumping)]” against China’s clean energy industry has given the public a very confusing message: On the one hand, the U.S. pokes around the world to find fault, then criticizes other countries’ slowness in emission reduction; on the other hand, it investigates and interferes with the development of clean energy in emerging economies including China. So, what exactly does the U.S. agree with and oppose?

I am afraid there is only one explanation: Only the U.S. is allowed to play the leading role and be the largest beneficiary in clean energy issues, and all other countries can only crawl behind America and only be allowed to dance when the U.S. plays the music; otherwise, anything other countries do is reckless, outrageous and considered a stumbling block to the U.S. Apparently, from the “Double Anti-Dumping” issue against China’s clean energy industry, the U.S. again still only shows the world its unilateralism.

Since the founding of Sino-U.S. relations in the 1970s, the trade value between the two nations has increased to $1.47 trillion from $2.3 billion (U.S. statistics). The two nations have become each other’s most important trading partner. The statistics from the U.S. Trade Office show that China has become the world’s largest exporter and second largest importer, and Sino-U.S. trade friction has long been rooted in issues of energy, rare earth minerals, deficit, surplus, as well as the RMB exchange rate. In June 2009, more than two years ago, the U.S. International Trade Commission recommended levying an ad valorem tariff on U.S. imports of passenger cars and light truck tires from China, of 55 percent, 45 percent and 35 percent respectively for a consecutive three years. In September 2009, President Obama approved the proposal. The final punitive tariff rate was 35 percent in the first year, 30 percent in the second year and 25 percent in the third year. China also tactfully responded to this trade friction. In my opinion, one of the distinctive features of Sino-U.S. trade war is that U.S. officials hold a different view from that of the U.S. business community; sometimes, their views can be quite the opposite.

How can an unfair trade investigation agency established by the U.S. government be rejected by the U.S. economics world? The explanation is easy to understand. From a political standpoint, during the Sino-U.S. trade war, the American trade unions—a political force with power that cannot be ignored during U.S. election campaigns—had the strongest voice against trade with China. Following their demands to press against trade with China may bring President Obama more votes. In this regard, the greater the U.S. official’s response (to anti-dumping), the greater the possible effect (winning votes) will be. U.S. domestic law encourages interest groups to participate in the decision-making process of foreign trade. Different interest groups have the right to ask the government to take appropriate protective measures such as conducting investigations into foreign countries’ so-called “unfair” trade practices, or even to initiate sanctions. For the sake of reelection, it does not take much effort to understand why — with the trade issue — President Obama chose to play games with China. The reason why U.S. industries resolutely resisted the U.S. government’s criticisms of China was because they are the ones standing on the front line of international trade and have seen the two countries’ economic situations, as well as that of the world, therefore they view Sino-U.S. trade with pragmatism. Whether the U.S. industries’ boycott of the State of the Union address will affect the U.S. government’s intention to fight this Sino-U.S. trade war, only time will tell.

Of course, when I analyzed the information and concluded that U.S. factors are part of the cause of the so-called “China’s digression in trade liberalization,” I did not try to cover up the fact that reforms by some sectors and departments in China were not in place. With regard to this problem, China’s leaders have said repeatedly in recent years they will unswervingly continue economic reform and opening-up policies, and have taken a series of measures to solve the problem. However, what is worth mentioning is that when looking at the difficult situations that China has been experiencing in its international trade, in comparison the U.S as well as other world powers should do some self-reflection.