China and the United States have both emerged as two of the biggest competitors in the global geopolitical arena, so it should come as no surprise that the two countries have been locking horns over various trade laws. And with the American public growing increasingly jaded with the apparent high-unemployment and stagnant wages that come with globalization, America is increasingly looking for legal means to protect its markets.Now, China appears to have lost the latest round of fighting, with the WTO upholding one of Obama’s trade policies.
The law, known as the GTX (GTX) legislation, was signed into effect back in March of 2012 and immediately challenged by the Chinese as unfair. The GTX law increased the United States ability to level tariffs and other fees against subsidized goods being imported from “non market countries”.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
Scope of the bill somewhat limited
The Chinese government estimates that the amount of trade affected per year amounts to only $7.2 billion dollars a year. Given that China regularly exports in excess of $400 billion dollars worth of goods per year, the overall impact of the trade law is somewhat limited. Still, the precedence set by the case could prove essential in the future.
The trade law targets solar power panels, tires, aluminum products, towers used in windfarms, among other goods. The panel was launched after the United States lodged a complaint of its own over the Chinese government’s support of the export of cars. Once signed into law in the United States, the Chinese government quickly challenged in at the WTO.
China’s Government Claims Victory
Despite failing to overturn the law, the Chinese Ministry of Commerce declared victory. The Chinese had already fought this law once, and lost its case. The second round marked an appeal and the appeal panel largely left the earlier ruling intact. The appellate panel argued it lacked sufficient information to challenge the earlier ruling.
One important piece of the earlier ruling, that the United States was incorrectly double counting Chinese goods to be punished. Apparently, the American government was counted punished goods for both being subsidized and unfairly priced.
While the scope of the law and the ruling may be relatively minor in the grand scheme of things, it is a sign of the growing tensions between the American and Chinese government. The Chinese are under pressure to keep their economy growing, while the American government is contended with a citizenry that is increasingly questioning the benefits of globalization. These factors, among many more, could cause tensions to flare up in the future.