The China Tariffs
Can practicing protectionism promote free trade? That seems to be the strange logic of the Bush Administration, which on Friday met Congressional pressure to get tough on China with new tariffs on coated paper imports. We'd have thought the White House had learned the futility of this exercise from its 2002 steel tariff fiasco.
But apparently not. The Commerce Department announced duties ranging from 10.9% to 20.35% on high-quality paper from China in the name of fighting government subsidies. "The China of today is not the China of years ago," Secretary Carlos Gutierrez declared. "Just as China has evolved, so has the range of our tools to make sure Americans are treated fairly." U.S. stocks and the dollar promptly sold off on the news; investors understandably worry when the world's economic leader starts picking trade fights.
The move came in response to complaints from the U.S. paper industry, but it signals a major shift in trade policy that is certain to invite further protectionist demands. For more than two decades, the U.S. has refrained from imposing duties on nonmarket economies. Because nonmarket economies are directed by the state, the logic went, it's difficult to untangle the extent of "illegal" subsidies to any one company or industry.
Better, instead, to impose "safeguards" against import surges or look at the end price to the U.S. consumer to prove "dumping." China is already subject to those protectionist "tools." But now Commerce is also claiming that China's economy has "evolved" enough to treat it like a market economy -- and thus can be subject to an entirely new set of tariffs. Other U.S. industries facing Chinese competition are now sure to claim the same subsidy damage.
We oppose subsidies as much as anyone, and it's true that China's economy has advanced in large part by introducing market reforms. But its financial system is still a government-controlled mess. In measuring low-interest preferential loans to the Chinese paper companies, Commerce itself says Chinese interest rates "are not reliable as benchmarks" because of the "pervasiveness" of government intervention. "There is not a functioning market for loans," Commerce notes, which is also the case Treasury Secretary Hank Paulson makes as he lobbies China to reform its financial system.
The point is that by Commerce's own admission it's difficult, if not impossible, to determine how much China's government meddling affects the price of coated paper exports. Commerce also decries tax incentives and debt forgiveness handed out to paper companies through China's five-year plans. But while such industrial policy is grossly inefficient, it isn't necessarily illegal under World Trade Organization rules. What's illegal is to give tax breaks to companies explicitly to promote exports, which distorts international trade flows.
In any case, the proper place for Washington to take its trade complaints is to the WTO. In February, the U.S. Trade Representative filed a case against Chinese subsidy programs aimed at promoting exports. A few weeks later, China retracted one of those programs rather than head to a WTO arbitration board. The U.S. will not get China to play by global trade rules by acting unilaterally itself. Meantime, in the name of punishing China, the Bush Administration is punishing U.S. paper consumers who will now have to pay higher prices than their global competitors.
U.S. officials concede much of this in private but claim they have to do something to head off even harsher anti-China measures now moving through Congress. Any number of protectionist measures have been introduced, including a bipartisan bill -- sponsored by Artur Davis (D., Alabama) and Phil English (R., Pennsylvania) -- to allow Commerce to apply countervailing duties against nonmarket economies. The White House also hopes that a show of "toughness" on trade will make it easier for Democrats to support an extension of trade promotion authority.
That was the same too-clever-by-half logic that caused President Bush to impose steel tariffs in 2002. Mr. Bush got his trade negotiating power, which we think he would have won anyway. But the tariffs and subsidy-laden farm bill of that same year undermined U.S. trade credibility and sowed the seeds of failure for the still-floundering Doha Round of global trade talks. Rather than be appeased by these China tariffs, Congress, Big Labor and various business interests are far more likely to claim policy vindication and demand more. The Bush Administration is playing with matches, and we hope the economy doesn't get burned.
From: Wall Street Journal
Date: April 2, 2007 Back