RIETI Report December 2018

A Balanced Approach to Addressing the US-China Trade Dispute

Recent media coverage and trade war rhetoric has increased public awareness of pressing issues facing our global trading system and the various complaints of trading partners around the globe. Frictions between Presidents Trump of the United States and Xi of China have highlighted the complex relationships that both emerging and mature economies are grappling with in the face of growing technological and geo-political pressures.

Many leaders agree with Trump's assessment of China to a large extent, although there is much debate over the specific measures and larger strategies that could be adopted to improve the situation. Wei introduces both sides of the equation to highlight a more nuanced view of the legitimate claims that both sides have. China's high barriers to trade, intellectual property practices and state subsidies are a clear problem for global innovation, production and trading systems and there is significant room for reform, especially if those reforms focus on remedying market distorting measures and systemic inefficiencies that result from the over-reliance on state-run subsidies.

On the other hand, as Wei points out, the US and other developed economies that share the appraisals of China can make significant improvements to their industrial policies that would be welcome improvements toward open and fair trade practices. The debates in the media often focus on the external pressures and effects, but Wei points out the various positive and often overlooked domestic impacts of significant reform that provide further reason for leveling the playing field from within.

In addition to bilateral or small scale multilateral action, Wei outlines the role of the WTO and specifically its shortcomings in resolving the issues at hand to this point, introducing areas where realistic changes would provide the most benefit in revitalizing the organization and allowing it to function properly as a reasonable intermediary.

This month's featured article

A Balanced Approach to Addressing the US-China Trade Dispute

Shang-Jin WEIN.T. Wang Chair and Professor of Finance and Economics at Columbia University, and Former Chief Economist of Asian Development Bank

It has been said that many of President Trump's complaints about China's trade practices are legitimate. The Europeans and the Japanese share many of the same complaints including still high barriers to trade, weak protection of intellectual property rights, and subsidies to firms, especially state-owned firms, that lead to unfair competition in the international market. It is true that China can do more to make its economic system simultaneously more efficient and fairer. At the same time, it is important to recognize that the United States (U.S.) and many other high-income countries can also undertake further policy changes to make the global trading system more efficient and fairer.

Before we go into the details, let me make it clear that this is not a piece about what is likely to happen in the short term, but what it should happen in the medium term.

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