Potential for Trade Conflicts between the United States and China

Economic frictions over currency and trade are reigniting between the United States and China for the first time in years. In particular, the overproduction of steel by China is viewed as a problem. In May 2016, the U.S. government made the final decision on antidumping tariffs on corrosion-resistant steel made in China and imposed the highest rate of 241% on some leading Chinese manufacturers, including Baoshan Iron & Steel. In addition, in December 2016, the United States, the European Union (EU), and Japan decided to take a policy of not certifying China as a market economy country, although China, which marked its 15th anniversary of becoming a World Trade Organization (WTO) member in 2001, requested that it be certified as such. As a result, the trade partners of China continue to enjoy the situation of easily taking antidumping measures such as hiking tariffs if they consider that the exports of China are being dumped (Note 1).

Investigation and invocation of antidumping are known to be caused primarily by macroeconomic and retaliatory factors. These macroeconomic factors include the growth rate of domestic gross domestic product (GDP), fluctuations in real exchange rates, import penetration (the percentage of the overall industrial supply made up by imports), and employment. Looking at the current situation in the United States and China, this is exactly what it is. The U.S. economy had a hard time recovering from the global financial crisis in 2008, while the Chinese economy has been slowing since 2010, with its GDP growth rate falling to the 6% level. The exchange rate of the yuan against the dollar has fallen to its lowest level in five years, and the United States is fiercely criticizing the Chinese government for strengthening the international competitiveness of Chinese products through currency manipulation.

Chad Bown, who is well known for his development of the Global Antidumping Database of the World Bank, analyzed the macroeconomic factors for temporary trade barriers, including the antidumping of developed nations such as the United States and those of the EU, using quarterly data from 1988 to 2010 (Bown and Crowley, 2013). According to their estimates, the number of imported items against which temporary trade barriers are created will increase by around 21% if the dollar increases in value by one standard deviation (about 16%), and the number of import regulations in the United States will increase by as much as 25% if the real GDP growth rate of a trading partner declines by one standard deviation. They report that the number of antidumping cases against China is also very large compared to other countries.

Other factors such as import competition and the protection of domestic employment are also important. In fact, generally, the higher the import penetration in an industry sector is, the higher the probability of launching an antidumping investigation will be. Looking at these trends by sector, the number and probability of antidumping investigations are larger and higher in the basic material industries such as steel and chemical products. In addition, it is conceivable that if the government focuses on the employment problem when it decides on an antidumping investigation or measure, the probability of launching an antidumping investigation will be higher in industries with a large number of employees. In fact, Bown and Crowley (2013) show that if the unemployment rate in the United States rises, the number of antidumping measures increases by a statistically significant amount.

Both the United States and China have a large number of antidumping investigations and a large number of investigated antidumping actions. Bao and Qiu (2011) analyzed the factors for antidumping cases made by both countries using the data of antidumping cases in which the United States and China filed complaints against their trading partner from 1991 to 2005, with the focus on the retaliatory factors for antidumping. According to their analysis, the antidumping actions of China are not necessarily more retaliatory than those of the United States, although both countries had retaliatory motives. In addition, Bown (2010) reported that although the number of antidumping investigations undertaken by China into products of significantly reduced tariffs increased from 2001, when China became a WTO member, to 2005, China did not take discriminatory actions or respond tit for tat against certain countries.

Many existing studies were undertaken on macroeconomic factors and retaliatory factors, but the political economic factors have yet to be sufficiently analyzed. This is because political economic factors and variables are unobservable for economists in many cases. In particular, it is pointed out that when companies call for the protection of the government, their political connections (support from U.S. Congress members and politically sensitive industries, etc.) will have an impact on whether they are able to enjoy the protection of the government (Pierce, 2011).

Protectionism is gaining power in the United States. According to a series of studies by MIT Professor David H. Autor, import competition from China since it became a WTO member in 2001 has applied pressure to production and employment in the manufacturing industry in the United States, and this resulted in a decline in employment by about 2.0 to 2.4 million people from 1999 to 2011. Many of the voters in regions who reportedly were hard hit by the rise in Chinese product imports strongly supported Donald Trump, who had been severely criticizing the trade policy of China, and this had a major impact on the result of the U.S. presidential election (Autor, Dorn and Hanson, 2016) (Note 2). Trump has warned that he will levy stiff tariffs on imported goods from China once he assumes the presidency.

If the United States continues to refuse to certify China as a market economy country this time, it may have consequences in the years ahead. Studies by University of Oregon Professor Bruce Blonigen, who is an expert on antidumping, and others show that the probability of antidumping investigations and measures taken by the United States against countries that are certified as non-market economy countries was very high from 1980 to 1994, and that the probability of antidumping tariffs is also statistically significantly high (Blonigen and Park, 2004).

In China, on the other hand, state-owned enterprises (SOEs) have historically developed strong ties with the government, and are recognized as highly influential. I analyzed the relationships between SOEs and antidumping investigations by connecting antidumping investigations undertaken by China with firm-level data of Chinese manufacturing, taking their firm characteristics into account (Zhang, 2017). The results of the analysis revealed the following: (1) the probability that SOEs with lower productivity compared to non-SOEs demand an antidumping investigation is high; (2) the higher the ratio of state-owned capital is, the higher this tendency becomes; and (3) the probability that SOEs administered by the central government or a provisional government demand an antidumping investigation is significantly high statistically.

Because various pressures are mounting in domestic politics in both the United States and China against a backdrop of weak economic growth, trade conflicts are likely to become more serious in some industries such as steel and chemical products. In the future, I will introduce related studies on the impact antidumping will indeed have on trade and firms.