Trade policy is a major source of friction in the U.S.-China relationship – so much so that the facts are sometimes obscured by rhetoric. Albert Keidel and Robert Cassidy debated whether China’s violations of international trade norms merit a U.S. response and if so what actions the U.S. should take. Roger Ferguson, former Vice Chairman of the Federal Reserve, moderated the debate.
Keidel: The accusations are overblown
Even the most serious current claims against China are poorly reasoned and often flimsy arguments, according to Keidel, and given the strategic importance of U.S.-China relations the United States should only pursue well-documented and well-reasoned cases of trade regulation infractions.
The most common accusation, that China manipulates its currency to keep exports artificially cheap, relies on “clearly exaggerated” statistics. The large gap between U.S. imports from China and Chinese imports from the U.S. is not by itself an indicator of currency manipulation, Keidel said, although it is commonly cited as such.
The global community should bear in mind that China is still developing, Keidel noted, and like many developing countries lacks the legal infrastructure critical to the management of other trade issues, such as intellectual property rights (IPR).
Cassidy: China is violating its WTO commitments
Cassidy argued that China has broken the promises it made in its WTO accession agreement, by failing to properly report subsidies, undervaluing its currency, and violating intellectual property rights. Cassidy cited several major economists who concluded that the renminbi is undervalued by 15 to 75% and also pointed to the trade surplus as a sign of currency manipulation.
WTO regulations allow China to use administrative measures to uphold IPR while their court system matures, and Cassidy noted that the Chinese government has IPR laws in place but does not enforce them properly.
U.S. policy options
Both participants agreed that the United States does not need to implement extraordinary measures to deal with China’s trade violations. There are mechanisms within the WTO and China’s WTO accession agreement that could achieve the desired ends.
Keidel argued that high-profile draconian measures (like applying a countervailing duty or passing Congressional resolutions asserting that China manipulates its currency) are unhelpful and unnecessary. Working through the WTO to address issues of serious concern is the best way to resolve disputes without letting shrill rhetoric and inflated accusations undermine U.S. credibility.