US President Donald Trump has ramped up the pressure on his Chinese counterpart Xi Jinping ahead of trade talks in Shanghai on 30 July by announcing his dissatisfaction with Beijing's "developing country" status in the World Trade Organisation.
"The WTO is broken when the world’s richest countries claim to be developing countries to avoid WTO rules and get special treatment. No more!" Trump tweeted on 26 July referring to the United States Trade Representative memo concerning large developing nations including the People's Republic that has been a member of WTO since 2001.
The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. NO more!!! Today I directed the U.S. Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!
— Donald J. Trump (@realDonaldTrump) July 26, 2019
The US president directed his Trade Representative to stop treating large emerging economies as "developing" in case the WTO does not initiate reforms with regard to these countries' "unfair advantages" within the next 90 days.
In response, China's news outlets lashed out at Washington calling the US tactics an "old trick" destined to fail.
"WTO members will have to debate on this and decide together. The US does not have the final say on this," Huo Jianguo, vice chairman of the China Society for World Trade Organisation Studies, told the Global Times on 28 July.
WTO Dispute: US Accusing China of Every Problem Presenting No Evidence
"It is sadly ironic that in any circumstances the US acts unilaterally, looking only to its own interests," said Fabio Massimo Parenti, an associate professor of economic and political geography at the Lorenzo de Medici Italian International Institute in Florence. "Trump is the new 'tariff lord', he launched the trade war against China and other competitors and divides the world into friends and enemies according to the extent to which countries accomplish or not the US will. Like for example in the recent evolution of the trade war with China, negating WTO principles."
Parenti noted that Washington is urging the WTO to carry out market reforms, "accusing China of every problem without evidence," including "unproved national security issues related to Telecom Corporations or Intellectual Property Rights (IPRs) thefts."
"It is important to remember that China entered WTO in 2001 after changing thousands of laws and regulations and accepting all the conditions negotiated at international level. No one contested the Chinese accomplishment to WTO requirements," the Italian professor said, adding that the agreement imposed certain constraints on Chinese exports years after its accession to the WTO.
According to Parenti, the US and Europe pushed for WTO expansion which benefited the internationalisation of their companies through the opening up of many foreign markets.
"Western corporations could expand around the world - supported by US dollar dominance - exploiting lower labor costs, lack of internal competition and financial weaknesses," the Italian academic argues. "At the same time, entire regions of the world experienced problems, namely financial crises, related to fast opening up, foreign speculation-manipulation, and weak economic and institutional environments."
Although China was exploited it; it managed "to strengthen its political independence and priorities, avoiding deep crises, reforming gradually its own economic environment, and combining carefully international integration and domestic development," Parenti said, adding that now, when China is rising, the US has thrown into question "the institutional architecture" it built along with Europe.
Trump's Confrontational Trade Actions Make It Difficult to Sort Out WTO Issue
Thomas Prusa, American professor of economics at Rutgers University in New Brunswick, New Jersey believes that the US is deliberately stepping up pressure on China ahead of the Shanghai talks.
"Different rules for developing countries within the GATT/WTO is nothing new," Prusa says. "The Trump Administration is essentially saying they don’t like the deals that were negotiated in the past. Changing the rules could be done as part of a regular negotiating round. However, that would mean the US (and other developed countries) would have to give something in return. The US just wants a one-way street - give the US more. This is not how trade negotiations normally go".
According to the American economist, "the US has already been reneging on provisions of the China accession."
"In that sense, this is just the latest example of changing the terms for China," adding that Trump's actions have come as "yet another sign that the trading system is broken."
Simon Lester, associate director of Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies, presumes that "there is a real issue with some countries that are fairly wealthy claiming developing country status, and taking on fewer obligations at the WTO."
"It is not clear how much practical impact this has, but at least in theory some countries are doing less than they should," he believes. "Thus, the Trump administration’s demands do have some basis. However, the administration’s various other confrontational actions on trade policy may make it difficult to get a resolution to this issue."
Commenting on the upcoming US-China trade talks in Shanghai, White House economic adviser Larry Kudlow signalled on 26 July that he "wouldn’t expect any grand deal."
"We anticipate, we strongly expect the Chinese to follow through (on) goodwill and just helping the trade balance with large-scale purchases of US agriculture products and services," Kudlow told CNBC referring to the preliminary agreements reached at the G20 in late June.
China and the US agreed to make steps to break the deadlock after the Trump administration resorted to further tariffs after the countries' trade talks stalled in May. While China vowed to make some tariff-free purchases of US farm goods, the US pledged to ease some restrictions on Chinese telecom giant Huawei, which was blacklisted in May. However, neither country has yet to make a substantive move.
According to Trump, Beijing may delay the signing of the Sino-American trade deal until after the US 2020 presidential election in the hope that a Democratic candidate who could be easier to negotiate with will come out on top.
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