China has filed a lawsuit with the World Trade Organization after the U.S. on Sunday began to impose 15% tariffs on the first batch of $300 billion (US dollars)-worth of Chinese imports.
To retaliate, Beijing also levied new 5-10% duties on the first batch of US$75 billion-worth American imports including crude oil — the latest escalation of their trade war.
While some analysts laud Beijing’s efforts to honor multilateralism, others say such a move will only expose the Geneva-based trade organization’s inability to solve the dispute between the world’s two largest economies, and further undermine its credibility.
Osaka consensus
On Monday, China’s Ministry of Commerce said in a statement that Washington’s latest tariff action has seriously violated the consensus reached between U.S. President Donald Trump and Chinese President Xi Jinping during their G20 summit in Osaka, Japan.
In late June, both leaders agreed to restart trade talks and hold off new tariffs.
As such, Beijing lodged the complaints at the WTO to “resolutely safeguard its legitimate interests and firmly defend the multilateral trading system and international trading order,” the statement added.
The lawsuit is the third Beijing has brought to challenge the U.S.’s China-specific tariffs at the WTO.
No rulings in sight
It first complained to the international trade body after Washington levied a 25% duty on US$50 billion of Chinese goods last July and again last September after the U.S. placed another 10% tariffs on US$200 billion of Chinese imports.
So far, the WTO has yet to rule on either of China’s previous two complaints and is highly unlikely to rule on the third in the next year or two, if not years, analysts say.
Even if panels of the trade body’s dispute settlement mechanism decide to act on China’s requests and adjudicate, it will be a “hollow judgement,” which neither country is likely to honor to resolve their trade frictions, said Roy Lee, deputy director of the WTO & RTA center under the Chung Hua Institution for Economic Research.
A hollow judgement
“These actions of theirs serve as different weapons for them to attack each other during the U.S.-China trade war. But I think that [China’s litigation] move through the WTO will have a negative impact on the trade organization,” said Lee.
“That is, it will undermine the WTO’s credibility and thus be detrimental to the WTO. I think it will only end up proving one thing, that is, the WTO is unable to handle [the trade dispute] and it will result in a hollow judgement,” he added.
Trump has made it clear that shall the U.S. lose the cases, it will not carry out any of the WTO’s judgements. He once threatened to pull the U.S. out of the WTO.
The U.S. argued that it is penalizing China for theft of intellectual properties, which isn’t covered by WTO rules.
Unfair trade practices
And both countries have agreed not to resort to the WTO to address their issues, according to Washington’s written defense published on Friday.
“China has taken the unilateral decision to adopt aggressive industrial policy measures to steal or otherwise unfairly acquire the technology of its trading partners; the U. S. has adopted tariff measures to try to obtain the elimination of China’s unfair and distortive technology-transfer policies,” it said.
Uncertainty looms on how the WTO will rule on China’s three legal cases against the U.S.
But Lee said that China is slightly upper-handed as the WTO may insist that any tariff hike about its allowed maximum must first be justified at the trade organization.
Much-needed reforms
He, however, agreed that the U.S. has a point when it argued that the WTO, which has long overlooked China’s unfair trade policies and its past failure to honor WTO commitments, requires reforms before it can rule in fairness.
Hence, China’s move is largely symbolic in gaining moral high ground as any WTO judgement, if there is any, won’t help resolve its trade war with the U.S., analysts said.
Liao Qun, chief economist at China CITIC Bank International Ltd, agreed, saying that both countries need to iron out their differences through continued bilateral trade negotiations.
Emphasis on multilateralism
But China’s WTO action sends a clear message that neither will it easily back down from its trade fight with the U.S., nor will it support unilateralism, Liao said.
“China still hopes to honor the WTO as a multilateral [trade] organization as opposed to the U.S.’s unilateral actions or plan to overthrow [WTO rules]. It shows that China stands firmly behind the WTO,” said the economist.
Liao said that he remains optimistic that both countries will try to cut an interim deal sometime by the year’s end or early next year in the lead-up to the U.S. presidential elections.
However, Trump will weigh the U.S.’s economic performance and his own re-election bid to decide if a deal with China is worth it, he added.
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