Trading Places: China’s Expanding Influence in International Trade and the World Trade Organization

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By William Yuen Yee

Columbia University

 

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With its signing of the Regional Comprehensive Economic Partnership (RCEP) on November 15, 2020, China has definitively seized the mantle of Asia-Pacific trade leadership from the U.S., a sentiment accentuated by America’s unceremonious withdrawal from the Trans-Pacific Partnership (TPP) in 2017. China will build upon the RCEP to join other multilateral free trade agreements (FTA), expand its presence and leadership in the World Trade Organization (WTO), and ultimately depict itself as a champion of internationalism amid a rising populist tide that has reverberated across the world—much to the detriment of the United States.

 

In 2005, former U.S. Deputy Secretary of State Robert Zoellick challenged China to become a “responsible stakeholder” in the international system; now, under the Trump administration, it seems the tables have turned, particularly in the realm of international trade. The present moment is reminiscent of the seminal comedy film Trading Places that stars Eddie Murphy, wherein a haughty business executive and a guileful street hustler undergo a dramatic role reversal. Read today, Zoellick’s address to the National Committee on U.S.-China Relations rings somewhat ironic and hypocritical. 

 

While the RCEP is sometimes mistakenly viewed as “China-led,” the People’s Republic of China nonetheless stands to accrue significant economic and geopolitical benefits from its participation in the historic treaty—arguably the largest free trade agreement in history—that is projected to add $500 billion to world trade by 2030. China built upon its progress with the treaty that comprises 15 Asia-Pacific countries by signing a major investment treaty with the European Union. The RCEP might also serve as a springboard for China to join future multilateral agreements like a China-Japan-South Korea trilateral FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor agreement to the TPP.

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CHINA WITHIN THE WTO

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These recent multilateral trade efforts in Asia entwine with China’s broader aims to exercise significant influence in the WTO. China has already exhibited a capacity to utilize the WTO for individual gain. Its economic mercantilism systematically discriminates against foreign producers in China, forcing foreign companies to proffer their intellectual property to access China’s expansive domestic market. China also deploys widespread protectionism across its trade practices, imposing high tariffs and erecting trade barriers that favor Chinese companies. 

 

Boasting the second-largest economy in the world and a $14.3 trillion GDP, China also benefits from its self-designated status as a “developing nation” to receive “special and differential treatment” like extended time windows for implementing WTO judgments. In February 2019, the United States proposed reforms to the WTO that sought to create stricter eligibility requirements for the designation. China responded by collaborating with India and several other developing member states to rebuke America’s proposal and endorse the extant practice of allowing WTO members to self-designate their status. In the end, China successfully retained its “developing nation” designation. 

 

China has notched other significant wins over the United States in the WTO. President Trump has previously vowed to remove China from the international trade body, referring to China’s accession in December 2001 as one of the “worst legacies of the Clinton years.” However, Trump’s efforts were repeatedly stymied because no legal framework or avenue for expelling a country from the WTO exists. In November 2019, the WTO authorized China to impose tariffs on $3.6 billion of American goods, concluding a dispute that erupted in 2013 when China complained the U.S. had unfairly levied anti-dumping duties on over 40 Chinese products. In addition, China has used the WTO to pursue its own agenda vis-à-vis the United States, submitting its own WTO proposal in May 2019 that, inter alia, criticized the U.S. for blocking new appointments to the WTO’s Appellate Body, a vital component of the WTO’s dispute settlement system.

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DOES THE WTO FAVOR CHINA?

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It is crucial to note that the WTO overwhelmingly tends to side with the United States in U.S.-China trade disputes. Between 2003 and 2019, U.S. officials challenged Chinese practices 23 different times in the WTO; the win-loss record is 20-0 with three cases pending. Conversely, China has won just one-third of the cases it has brought against the United States. 

 

Yet, China retains a respectable record of compliance with WTO judgments. Between 2004 and 2018, 27 “matters” were litigated against China. In the 22 cases that have been resolved thus far, with one exception, China responded by taking actions to improve market access. However, the sincerity and extent of such Chinese compliance with WTO judgments remain somewhat questionable; Western New England University’s Tim Webster has argued that China’s implementation of WTO decisions constitutes “paper compliance.” At times, China’s method of compliance involves creative stratagems to sidestep the true spirit of certain WTO rulings. 

 

One example occurred after the international trade body ruled that China did not provide sufficient market access to foreign electronic payment services like Mastercard and Visa, violating international trade rules by rendering China Union Pay a monopoly supplier for the clearing of RMB-denominated card transactions. While China’s State Council pronounced in 2014 that foreign payment companies were permitted to apply for licenses to provide domestic bank card clearing services, it was not until early 2020 that Mastercard, American Express, and other overseas companies finally gained approval from the People’s Bank of China to establish such operations. 

 

How China will ultimately seek to expand its influence in the WTO remains an open question. China has long sought to set regional and international trade rules absent the influence of the United States. One direction this might take is the proliferation of trade rules that favor Chinese economic activities, including lower labor standards, lower environmental standards, and few constraints on the influence of state-owned enterprises. The RCEP’s provisions on e-commerce and digital trade—which China has proven amenable to—present somewhat of a preview to the WTO’s impending Joint Statement Initiative (JSI) on Electronic Commerce, which is currently undergoing negotiations that include 86 WTO member states, representing over 90% of world trade. 

 

Regardless, the most notable difference between the U.S. and China lies in the ultimate willingness of their respective leaders and domestic constituencies to engage with the WTO. This distinction manifests in China’s vigorous activity as a third party participant in the WTO’s dispute settlement system, the WTO’s legal apparatus for resolving trade conflicts between member states. China joined half of all disputes filed between 2002 and 2019, while the U.S. acted as a third party to just 26.3 percent of cases. At present, China appears far more inclined to assert its presence and leadership in the intergovernmental trade organization than the United States. 

 

PROTECTIONIST TENDENCIES

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Augmenting China’s ability to expand its influence in the WTO is widespread protectionist sentiment in the United States. In 2018, President Trump threatened to withdraw from the WTO. In May 2020, Missouri Republican Senator Josh Hawley introduced a joint resolution to do just that. While the bill requires approval from both chambers and is unlikely to pass, it is nevertheless indicative of the sky-high domestic anti-trade sentiment within the U.S., which will indubitably impede any internationalist aspirations of the Biden administration. 

 

Unsurprisingly, President Biden has remained vague on the issue of either joining the RCEP or returning to the CPTPP. Katherine Tai, Biden’s recently confirmed U.S. Trade Representative, effectively dodged the question of whether the U.S. should pursue the TPP or a similar deal at her February 2021 Senate confirmation hearing. While “the basic formula of TPP is still a sound formula,” Tai said, “a lot has changed in the world in the past five or six years. And a lot has changed in terms of our own awareness about some of the pitfalls of the trade policies that we've pursued.” In essence, the odds that the U.S. joins either international trade agreement, particularly in the near-term, are slim. 

 

Constrained by domestic anti-trade sentiment and still promoting recovery from the worst public health crisis in over a century, today’s Biden administration falls short of a panacea to cure the decline of American influence in international trade. Now, such anti-globalization sentiment in the U.S. is not wholly unwarranted. MIT economist David Autor ascribed the loss of 985,000 manufacturing jobs in the U.S. between 1999 to 2011—about 20 percent of total job losses in the sector—to the so-called “China shock” of exposure to increased competition from China. Nevertheless, the end result remains the same: The United States has ceded leadership over international trade and its related multilateral organizations to China. 

 

The consequences of this role reversal should not be understated. The U.S. has acquired significant economic and political benefits from institutions that facilitate multilateral trade and promote globalization, an American invention that originated with the establishment of the General Agreement on Tariffs and Trade, the predecessor to the WTO. Globalization has enabled the U.S. to sustain its worldwide dominance in economic heft and innovation. As Long Island University economist Panos Mourdoukoutas wrote, “Anti-globalists often tend to forget that popular products like Nike snickers and Apple’s smartphones and iPads may be made in China or elsewhere in Asia, but they are designed here, generating highly paid jobs for American employees and hefty returns for American investors.” The political benefits of U.S. leadership over international organizations are also manifold, bolstering American power and prestige and allowing the U.S. to spread core democratic values like liberty, equality, and respect for human rights.

 

RAMIFICATIONS FOR THE U.S.

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Without a doubt, the most detrimental aspect of China’s expanding influence in international trade and at the WTO to the U.S. manifests in its symbolism. China has reshaped the media narrative of its country, depicting itself as a staunch advocate of multilateralism and internationalism amidst an ascendant populist wave that has engulfed previously liberal strongholds like the United Kingdom, France, and of course, the United States. Yet, one formidable obstacle that Chinese leaders must surmount in the Chinese Communist Party’s quest to expand Beijing’s influence under Xi Jinping remains the high levels of public distrust and unfavorable views toward China among developed, democratic nations.

 

While China’s broadening influence in international organizations portends voluminous negative ramifications for the extant economic and geopolitical clout of the U.S., America might obtain one marginal benefit. China’s newfound aspirations under Xi Jinping to expand its influence in organizations like the WTO constitute an implicit acknowledgment of the superiority of Western-led international institutions and the subordination of Chinese Communist Party leadership to their practices and ideals. However, the contemporary moment is one in which the U.S. cannot rest on its laurels but must instead actively work to reassert U.S. dominance and combat China’s rising influence. 

 

Such is the biggest challenge that looms for the United States. China’s augmented influence spells significant foreign policy challenges ahead for the Biden administration to restore the standing of the United States atop the helm of the liberal international order that it has pioneered and led since World War II. In an unfortunate 2021 international trade rendition of Trading Places, China has become the responsible stakeholder that seeks to uphold and bolster the international system while the U.S. had brusquely abandoned it.

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The views expressed herein are those of the individual author, and they do not represent the official positions of organizing and sponsoring institutions, including China Focus, 21st Century China Center, Fudan-UC Center on Contemporary China, and the 1990 Institute.