Obama steps up trade battle with China

US President Barack Obama speaks about the investigation into the mass shooting in Orlando, Florida during a meeting with top officials in the Oval Office of the White House in Washington, DC, June 13, 2016. / AFP PHOTO / SAUL LOEBSAUL LOEB/AFP/Getty Images©AFP

Barack Obama has escalated the US’s trade battle with China, launching a formal complaint against Beijing as both of his potential successors push the domestic political debate in an increasingly protectionist direction on the campaign trail.

The new case, brought by the US president on Wednesday with the World Trade Organisation, challenges Beijing’s export restrictions on key commodities needed by US manufacturers and was accompanied by sharp rhetoric from the White House.

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“It all comes down to fair competition — a notion that is fundamental to who we are as Americans,” vice-president Joe Biden said. 

The complaint is the latest sign that sentiment in Washington, which had agreed a sweeping trade deal with east Asia only last year, has become increasingly volatile towards free trade amid rising anger in the electorate.

It also comes as Brussels is moving to ease its own tensions with Beijing. During an EU-China summit in Beijing on Wednesday, the two sides announced the formation of a new working group to monitor pricing and public subsidies to steel mills in China. 

Jean-Claude Juncker, European Commission president, said that the new group would be allowed to test Chinese pledges to trim the excess capacity that is swamping world steel markets. 

The move is aimed at comforting European leaders, who have explicitly linked a resolution of the steel dispute to China’s claim for market economy status at the WTO. 

The US filing complains that Chinese duties on nine key commodities — including copper, cobalt, tantalum and tin — are unfair export restrictions that enable Beijing to make important raw materials available to its own manufacturers at artificially low prices. 

Mr Obama had hoped that trade would be one of his key economic legacies, particularly a 12-nation Asian trade deal, called the Trans-Pacific Partnership, that has languished on Capitol Hill.

The TPP, which covers some 40 per cent of the global economy, is the largest regional trade deal ever negotiated by the US and is seen by its backers as an important component of US strategic efforts to counter what Washington sees as China’s increasingly aggressive bid for dominance in the Asia-Pacific.

But it has been opposed by both presidential candidates, Democrat Hillary Clinton and Republican Donald Trump, threatening what the administration still hopes will be its approval by Congress later this year. 

Partly to counter that and the accusation by Mr Trump and other Republicans that it has been weak on China, the administration has been stepping up its trade actions against Beijing. 

The case launched on Wednesday is the 13th brought to the WTO by the Obama administration which Mr Biden said had moved “more aggressively than any previous administration in history” to take on China and enforce US trade laws. 

But the move also highlights what has become a stark difference between the US and EU in approaches to China and trade disputes. The US has been resisting Chinese efforts to win an important declaration of its market economy status in the WTO, while the EU has broadly chosen to be more accommodative. 

If Beijing is able to win the status, major economies would be limited in punitive tariffs that they could impose for trade violations. The battle over China’s graduation to the status has gained greater currency because of global anxieties over what rivals see as China’s dumping of low-priced steel on global markets.

At a time of rising anti-establishment sentiment, western politicians are also facing political pressure over job losses linked to globalisation. In Britain, 11,000 jobs are in jeopardy as prolonged efforts continue to rescue lossmaking Tata Steel factories that its owners claim were put out of business by China. 

“Our Chinese counterparts and friends know that there is for us a link, an interrelation between the steel overcapacity and the market economy status,” Mr Juncker said. 

The commission is set to take stock of its stance on China next week. Italy and Spain continue to oppose granting market economy status to China, while Germany remains sceptical as well. 

Axel Eggert, director-general of the European Steel Association, said that the link between overcapacity in the Chinese industry and whether China was a market economy ought to be treated separately. “It is important to discuss with our Chinese trading partners, but Europe needs to remain firm when it comes to the most fundamental principles of the market economy,” he said. 

Members of the European Parliament, which earlier this year passed a non-binding measure opposing granting China market economy status, were also cautious of making too much of Wednesday’s announcement. 

“On substance it doesn’t change anything because the EU still needs solid trade defence instrument and China should still top engaging in unfair trade practices. A working group, of course, will never change that,” said Dutch MEP Marietje Schaake, a liberal who is a leading voice on trade policy in Brussels.

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