The US government has filed a lawsuit with the World Trade
Organization (WTO) concerning China’s subsidies provided to their auto industry.
The claim is that the Chinese government is providing incentives to its
auto-industries to improve export performance, which is a violation of WTO
rules. The article reminds us however, that the US bailed out our own
auto-industry. According to the article “Are Chinese Exporters Cheating?” the
WTO understands that the US bailout was a “rescue” for the industry and
therefore was not cited for any rule breaking.
Furthermore, the US has begun talks to form a trade pact
called the Trans-Pacific Partnership. The discussion for the layout of this
potential trade alliance includes 14 countries, of which China is not one of
them. However, China’s competitors
Vietnam and Malaysia are. The reason for this new partnership revolves around
the problem of China’s “state-owned enterprises” and the promotion of freer
trade.
In a basic summary, this just demonstrates the hand of
different governments in “free trade.” The idea is that neither country wants
to get behind the other in regards to their own economy. Therefore tariffs,
lawsuits, subsidies, and rule-reformation will keep occurring until each
country feels they are benefiting from the status-quo. It is no surprise that
countries in a position to do so will manipulate the supply and demand of goods
traded in the global market so that they are put in a better position globally.
So to answer the question in article titled “Are Chinese Exporters Cheating?”
my opinion is no. They are just playing the game.
I agree with you that Chinese exporters are not cheating even though the government provides subsidies to the Chinese auto industry. Since exporters' primary jobs are to export goods and services, and since it is common for governments to intervene in the marketplace, it makes sense that Chinese exporters are not cheating, especially if it is the case that only the Chinese citizens fund their government. However, in terms of currency trading, there have been a number of signs that China has been cheating in terms of manipulating its currency. This may be due in part to the fact that they hold a substantial amount of American debt and that they might want to capitalize on the opportunity to get reimbursed even more on top of what we owe them already so as to make American exports more expensive, make the dollar weaker and increase the U.S. trade deficit. An export subsidy can be considered a currency manipulation because many subsidies come in the form of loans, and the Chinese government is differentiating how it treats Chinese exporters and foreign countries in terms of financing. One thing I think that can be learned from the Chinese currency manipulation is that government involvement is risky in terms of trade because different countries have different economic situations, thus one country's subsidies may be considered more unfair than another's. The inherent risk to trade is conflict. Conflict may lead to tariffs and even more intervention, even to the point where two countries might not be able to have a win-win situation from trade because each country is trying to benefit at the expense of the other. Yes, tariffs, subsidies, lawsuits and rule-reformation will continue, but will each country benefit from 'the status quo' if at all by way of any of those four sets of actions? The answer is no. The Chinese exporters are not only 'playing the game', but playing it logically by capitalizing on the low-cost opportunities to expand its exports through, thus I don't presume it could be said that Chinese exporters could be considered to be "taking a bribe" from the Chinese government. In essence, the Chinese exporters themselves are not cheating, but rather the Chinese government is presumably cheating by showing home exporters preferential treatment.
ReplyDeleteTrade restrictions are likely, but only for political reasons of satisfying political special interests. Note that when we derive the gains from free trade in class, it does not depend on the trade policies of the partner countries. Even unilateral tariff reduction is welfare-enhancing.
ReplyDeleteI agree with you.Real world trade is not just like the case we analyzed in the class.China can not always import cars.They also need to develope their own technique to produce better automobiles.But now they just can not produce cars as well as American do.So they subsidize the automobile companies.
ReplyDeleteWhen we trade we have to take every thing into account.If China only import cars,export countries can make sanction any time they want.It's dangerous to the import country.