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Increasing Chinese Protectionism: A Real ‘Prisoner’s Dilemma’

Posted by Larry Doyle on June 23, 2009 2:25 PM |

Can we all just get along?

As the global economy continues to struggle, tensions within the international trade arena increase. To wit, today the United States and European Union fired a salvo back at a BRIC nation–none other than our largest creditor, the People’s Republic of China. Bloomberg highlights, E.U, U.S. Complain at WTO Over Chinese Export Curbs:

The European Union and the U.S. complained at the World Trade Organization about Chinese export restrictions on raw materials such as magnesium, their third joint complaint against the Asian nation.

The EU and the U.S. said they filed a request for consultations at the WTO in Geneva today, setting off a period of discussions with China aimed at resolving the dispute. If talks fail, WTO judges can be asked to rule on the issue.

“We are most troubled that it appears this is a conscious policy to subsidize Chinese industry,” U.S. Trade Representative Ron Kirk told journalists in Washington. “China is a leading global producer and exporter of the raw materials in question, and access to these materials is critical for U.S. industrial manufacturers.”

If this complaint were filed in the midst of a strong, robust global economy, one could dismiss it as a ‘one off situation.’ I believe it represents a far more important issue. I view this complaint as another shot in the ongoing ‘serve and volley’ being played out between China and the United States.

To this point, most of the shots have been directed from the BRIC nations toward the United States. While Obama has put forth a few statements to ‘buy American,’ the BRIC nations have aggressively promoted a move away from the U.S. dollar as the international reserve currency.

The crux of the Chinese-U.S. relations continually revolves around a very simple yet complex issue: trust!!

A colleague of mine, who is integrally involved in the international trade and finance arena, often reminds me of the elevated level of distrust between our two nations. The trust variable remains at the core of the Prisoner’s Dilemma, which I addressed this past January:

“In bad times everybody talks more about financial cooperation but the reality is that in bad times everyone wants to take care of himself first,” said Shi Yinhong, an international security professor at Renmin University in Beijing.

The most important component of our relations with China revolves around the fact that they are our largest creditor. How do we maintain and develop an honest, open, and trusting relationship with them? Have the Chinese cut corners and gotten entangled in other trade disputes with other nations? They must have. Can we utilize past trade transgressions on their part as leverage? Let’s check their track record.

I was startled to learn that China has only had one infraction against it since joining the WTO in 2001. Bloomberg highlights this point in referencing another case:

China lost its appeal of the WTO’s July 18 ruling that it was violating trade rules by requiring automakers operating there to buy most components from local suppliers or face higher duties. It was the first time China lost a case since it joined the WTO. (Sense on Cents emphasis)

Wow. This engagement with the People’s Republic of China may be more of a dilemma than we ever could have possibly imagined.


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