Global trade is already struggling with high shipping costs and closed Asian factories. This may not prevent a further rise in Sino-US trade tensions.
It’s a risky time to start a trade war: supply chains are harassed, shipping costs are skyrocketing, and the Delta variant is wreaking havoc on economies. The world just might have one anyway.
China on Thursday said it would formally apply to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, the successor to the Obama-era TPP free trade agreement that currently excludes the United States and covers approximately 14% of the world economy.
This follows a Wall Street Journal report last week that the Biden administration is considering a new investigation into Chinese subsidies under Section 301 of the 1974 Trade Act. It could result in new tariffs or a matter of the World Trade Organization in concert with allies. The White House is also revising the tariffs decreed by the last administration, some of which could be removed or changed.
Unilateral tariffs have proven ineffective in forcing China to make big changes to its subsidy policies, and the country’s performance during “phase one” of the 2019 China-U.S. Deal has been poor. As of July, China is on track to purchase just about 70% of US goods agreed for 2021, according to data from the Peterson Institute for International Economics. More unilateral tariffs might not help much.
Perhaps a big multilateral deal at the WTO could shake things up in Beijing. But the Biden administration has done little to reassure traditional U.S. allies that it supports them. A surprise U.S. pledge to share nuclear submarine technology with Australia this week thwarted an existing Australian deal with France, and Europe more generally felt snubbed by the United States to About Afghanistan. The ongoing bickering over the WTO appellate court system will not help matters.
If the United States again chooses to go it alone, Chinese retaliation is almost certain. Meanwhile, the prospect of the United States joining the CPTPP – seen by many analysts as one of the best ways to counter Chinese influence in Asia – still seems distant, given how far trade policy has become. toxic in Washington.
China’s bid to join the CPTPP is also likely to fail, given how quickly its relations with key members like Japan and Australia have deteriorated. The trade deal’s guarantees against market-distorting behavior by state-owned enterprises may not have kept pace with changes in China’s state-capitalist model either.
The CPTPP contains strict provisions prohibiting most subsidies to industrial state-owned enterprises. But it essentially defines a state-owned enterprise as one that is at least 50% owned by the government, or that the state has a demonstrable legal means of direct control, i.e. voting rights or control. from the administration board. Many key state champions in China may no longer meet this criterion, despite receiving very large explicit or implicit subsidies.
For example, about 70% of the shares of Semiconductor Manufacturing International Corp., the nation’s largest chipmaker, are floating, according to FactSet. Nonetheless, the annual report of the SMIC shows that it received public funding of at least $ 362 million in 2020. Widespread perceptions of state support for these key companies – whether or not they belong to the majority of state – also means that fundraising in the capital market can be done at very low rates. Meanwhile, many large Chinese private sector companies, now under increasing political pressure from Beijing, could find themselves investing for non-business reasons and acting more like state-owned enterprises.
As the border between the Chinese state and private companies becomes increasingly blurred, rather than the other way around, CPTPP members with freer economies are likely to be reluctant to allow China without a drastic change in economic policy. country or major changes to the agreement. himself. This could be an opportunity for the United States to forge a more concerted approach to its geopolitical rival, but the Biden administration seems more inclined to reopen the Trump toolbox. Another mutually damaging bilateral trade crash could be underway.
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