As the economic downturn continues to hurt average citizens the world over, two of its largest trading partners – the United States and China – are engaged in yet another dispute over trade rules. Many countries have brought cases to the WTO against the Chinese government, nearly half of all complaints contend with Chinese trade policies, but China is now fighting back. For the first time China has used its membership in the WTO to request an investigation of another member, the target: the United States.
The Chinese trade representatives claim that U.S. policies violate WTO rules by placing excess charges on certain goods. The United States counters that it is the Chinese who are violating WTO policy by selling items below their production costs in a strategy called “dumping.”
The intent of “dumping” is to price out all competition and monopolize a certain commodity. The Chinese have been accused of “dumping” by every major economy in the world, because their totalitarian regime – coupled with immense physical, natural and personal capital – allows the government to push prices below all competition. Many items coming from China – from basic metal goods to complex electronics – have been called out for “dumping” but the Chinese government continues with the status quo.
The WTO could pass sanctions against China for not complying, but they wouldn’t be of any use. Most of the world is still dependent on Chinese production, so the WTO could never order its members to lock China out; their economies would “starve” for lack of import consumption. It also could never levy a punitive monetary sanction against China because the totalitarian regime could simply tax its citizens and force them to pay it. Thus, most WTO “recommendations” are simply ignored by the Chinese government. An appellate body within the WTO recently ruled in favor of Canada, the United States and European Communities in a dispute over Chinese attempts to block the sale of foreign auto parts in China. The WTO “recommended” that the Chinese stop the practice and comply with its findings, but it is likely that the appellate body will simply be ignored.
On the other hand, the United States has no exceptional status in the world. WTO sanctions against the United States could be devastating, so it must eventually comply with WTO recommendations. Trade sanctions could crush what few productive, exporting industries this nation still possesses and a monetary sanction would have to be paid with borrowed money by our already indebted government. In their mania for “lower taxes” American politicians could never force their citizens to carry the burden the way the Chinese can.
It is this discrepancy that makes the Chinese investigation so alarming. The WTO tends to have a somewhat “anti-America” bias in its deliberations, primarily because most of its members are not American and thus have no loyalties to this country. The WTO will likely rule in favor of China. This would put even more restrictions on the United States’ ability to protect itself in world trade.
Whether you call it “protectionism” or “economic nationalism,” the point is that the United States needs to do something to buffer itself against the coming storm. People fear “protection” because they were all taught in elementary school how protectionism started the Great Depression. Trade barriers did not cause the Great Depression. People spent beyond their means, they bought things on credit they couldn’t afford, and industries produced more goods than the people could ever make use of. When the end came people were swimming in debt and businesses were back-logged with years’ worth of useless inventory.
This was a problem in every country, and trade protection had nothing to do with it. How could blocking foreign goods harm the economy when people had no money to purchase the goods that were already on shelves and in warehouses? “Protectionism” has been an economic pariah for 80 years because people – including government officials and scholars – simply draw the wrong conclusion from the given facts.
Had “protection” been implemented before it was too late the entire Depression may have been avoided, implementing them after the fact had very little effect on the outcome. We need to protect our industries and encourage growth at home. “"Free Trade” organizations like the WTO seek to impede our ability to do this. If they continue to stand in our way we need to remove them, instead of wasting our time, energy and tax dollars going through rounds of deliberations and hearings only to come away with the same bad conclusion.