February 5, 2017 | By:
Donald Trump vilified the Chinese government on the campaign trail, accusing it of manipulating China’s currency, stealing America’s intellectual property and “taking our jobs”. This hostility was not just posturing for the election season. In 2012 he had falsely accused the Chinese of inventing the concept of global warming—to make American manufacturing uncompetitive, he said. Tensions are high: Xi Jinping, the Chinese president, reminded global elites assembled at Davos that “no one will emerge as a winner in a trade war”. If America targets Chinese trade, China will hit back. So what might a trade war between the two economic powers play out?
There are two ways in which talk might translate to action. Mr Trump might try simply to enforce the rules of global trade in the court rooms of the World Trade Organisation (WTO). Since America has no bilateral trade deal with China, WTO rules define what is and is not allowed. Mr Trump might, with some justification, accuse China of boosting its economy with subsidies and flooding some American markets with cheap imports. He will find that the Obama administration had already initiated a number of legal cases against China at the WTO. His underlings have suggested that the Trump administration might go further, for example by launching cases against suspected Chinese dumpers, rather than leaving it to American industry. Crucially, however, while the Chinese would probably retaliate, perhaps suddenly finding health-and-safety problems with American food exports, this chain of events need not descend into a trade war. The rules of the WTO are designed specifically to handle this kind of dispute. If it finds that China is indeed not playing by the rules, then there are clear limits on how America can retaliate. If the system works as it should, any recriminations would be contained.
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