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Yujiro Oiwa

【#527】Trade War Has Originated from China’s Unfair Practices

Yujiro Oiwa / 2018.07.11 (Wed)

July 9, 2018

     The U.S. Trump administration invoked punitive tariffs on Chinese products for the reason of China’s infringement on U.S. intellectual property rights on July 6 as earlier planned. On the same day, China imposed retaliatory tariffs on U.S. products. The world thus plunged into an abnormal situation where the world’s first and second largest economies levy high tariffs on each other’s products on a large scale.
     Many of other countries including Japan have uniformly enhanced criticism against the Trump administration under the banner of free trade. President Donald Trump’s approach on trade with China is awkward and its effectiveness is questionable. However, it is also questionable if any retaliation against the Trump administration alone could serve to protect free trade. We must not miss the true nature of the problem.

Costs for protecting fair, free competition
     As explained by President Trump, the present situation has originated from earlier U.S. administrations’ wrong policies on China. Their over-forty-year-old policy of engagement with China or their support for China’s accession to the World Trade Organization as part of the policy has failed to make any expected achievement. Instead of contributing to expanding free trade, China has maintained government-led protectionist practices distorting market principles even since its accession to the WTO. There still exists no sign that China may revise its mercantilist policies.
     Not only the United States is responsible for bringing about the present situation. The European Union and Japan have effectively overlooked China’s unfair trading practices while giving priority to immediate economic benefits. In this sense, they should understand and support the U.S. action’s objective of correcting China’s unfairness and be responsible for the action’s economic effects. This is the costs they should pay to defend a fair, free competition market.
     However, the Trump administration’s approach is too rude. It is unreasonable for the U.S. administration to unilaterally impose additional tariffs on imports both from China that has to correct its unfairness and from U.S. allies that have acted under the agreed rules. Japan should not hesitate to file a petition with the WTO against any unreasonable tariffs.

Hasty RCEP agreement could benefit China
     A ministerial meeting for the Regional Comprehensive Economic Partnership (RCEP) initiative in Tokyo on July 1 produced an agreement to seek an RCEP free trade accord among Asian countries as a bastion against the Trump administration’s protectionism within this year. A change in Japan’s attitude was reported as one of factors that led the meeting to gain momentum for producing the agreement.
     Japanese Economy, Trade and Industry Minister Hiroshige Seko switched to a policy of promoting RCEP negotiations at a ministerial RCEP meeting in Singapore in March. At the latest meeting in Tokyo where he served as cochair, he voiced his determination to conclude the negotiations by the end of the year.
     Asserting that any RCEP agreement would not contribute to economic growth unless high-level trade liberalization is achieved, Japan had warned China and the Association of Southeast Asian Nations (ASEAN) against an early agreement at a low liberalization level. If Japan turns around its stance and concedes to low-level trade liberalization, it may block the expansion of a fair, free competition market in favor of China’s state-led trade and may weaken effects of the latest U.S. sanctions against China.
     Moreover, if Japan accepts an RCEP agreement for low-level trade liberalization, it may fail to take advantage of the Trans-Pacific Partnership free trade agreement for high-level trade liberalization in future negotiations on a Japan-U.S. free trade agreement demanded by the Trump administration. What Japan should do now is not to achieve any early RCEP agreement but to expand the TPP agreement and reconstruct the WTO through a fundamental reform of its trade dispute settlement functions.

Yujiro Oiwa is a JINF Planning Committee Member and Professor at Tokyo International University.