IV. The trade bullyism practices of the US administration

As the key builder of the international economic order and a major participant in the multilateral trading regime after the Second World War, the US should have taken the lead in observing multilateral trade rules and properly handling trade frictions with other WTO members through the dispute settlement system within the WTO framework. This is what the US government explicitly pledged to the international community. However, since taking office, with a narrow focus on "America First", the new US administration has practiced unilateralism and economic hegemony, abandoned its international commitments, and provoked international trade friction around the world. This has not only undermined the interests of China and other countries, but also jeopardized the international reputation of the US itself. And above all, it has shaken the foundations of the global multilateral trading regime, which will ultimately hurt the long-term interests of the US.

1. Unilaterally provoking trade friction on the pretext of US domestic law

Citing industrial injuries and protection of intellectual property rights, the current US administration regularly circumvents the WTO's dispute settlement system and provokes international trade friction merely using US domestic law as a pretext, initiating a host of investigations under the auspices of Section 232, Section 201 and Section 301. These investigations involve selective use of evidence and arbitrary conclusions. Without WTO authorization, the US has illegally imposed punitive, hefty tariffs on other WTO members, which is a serious breach of the most fundamental and central WTO rules and disciplines, including the most-favored-nation treatment and tariff binding. Such unilateralist actions have harmed the interests of China and other WTO members. More importantly, they have undermined the authority of the WTO and its dispute settlement system, and exposed the multilateral trading system and international trade order to unprecedented risks.

The US administration has conducted Section 232 investigations against the products of multiple countries, abusing the concept of "national security" for trade protectionism. In April 2017, on the basis of Section 232 of its Trade Expansion Act of 1962, the US administration initiated Section 232 investigations¹ against the steel and aluminum products of China and other major economies, citing "national security" reasons. In March 2018, based on the conclusions of these unilateral investigations, the US announced 25 percent tariffs on steel and 10 percent on aluminum imports, incurring widespread opposition and retaliation. On April 5, 2018, China took the lead to bring the case of US Section 232 measures against steel and aluminum to the WTO. Following the US announcement on the resumption of tariffs against EU steel and aluminum products effective from June 1, the EU struck back and appealed to the WTO, charging the US with violation of WTO rules. European Commissioner for Trade Cecilia Malmström said that the US was playing "a dangerous game", and the EU would be accepting these illegal tariffs if it did not respond. By August 2018, nine WTO members have litigated at the WTO over the Section 232 measures on steel and aluminum. In July 2018, the US administration initiated another round of Section 232 investigations on imported automobiles and auto parts, again on the grounds of "national security".

It is self-evident that steel and iron are basic raw materials for manufacturing, and automobiles are ordinary consumer goods. It is absurd to link them to "national security". Chad Bown, senior fellow of the Peterson Institute for International Economics, noted that the capacity utilization rate of the US automobile industry was over 80 percent and about 98 percent of US passenger vehicle imports were from the EU, Japan, Canada, the ROK and Mexico. Therefore, initiating the investigations on the ground that automobile imports impair US national security is baseless.² The US administration's arbitrary expansion of the scope of national security has no theoretical or historical logic. Essentially, it is all about using the executive power of the US President provided for by the relevant sections of certain law to circumvent regular legal restrictions to practice trade protectionism (Box 6).

The US has conducted Section 201 investigations against products of multiple countries. In May 2017, on the basis of its Trade Act of 1974, the US initiated Section 201 investigations³ on imported washing machines and photovoltaic products. In January 2018, it decided to impose a maximum of 50 percent tariffs for three years on washing machines and a maximum of 30 percent tariffs for four years on photovoltaic products. These were the first Section 201 investigations initiated by the US since 2001. As a major source of washing machines imports to the US, the ROK submitted a request for consultations to the WTO in May and announced that it would suspend tariff concessions on some US products as a response to the US imposition of tariffs on its products. On August 14, 2018, China resorted to the WTO dispute settlement system over the Section 201 measures on photovoltaic products.

The US has initiated Section 301 investigation against China. In August 2017, the US initiated a Section 301 investigation against China based on its Trade Act of 1974.⁴ A 25 percent tariff was imposed on US$50 billion worth of goods from China in July and August 2018, followed by a continuation of escalating tariff measures. Another tariff of 10 percent on a further US$200 billion worth of China's exports to the US was imposed from September 24, 2018. A Section 301 investigation is a trade investigation based on relevant provisions of US domestic law. It requests other countries to accept the intellectual property standards and market access requirements of the US, or face retaliatory trade sanctions. Such practice was described as "aggressive unilateralism" as early as in the 1990s.

Historical data show that it is very rare for a Section 301 investigation to be initiated – most cases are settled through consultation. According to a report from the Peterson Institute for International Economics released in March 2018,⁵ from 1974 to the present, the US government has conducted 122 such Section 301 investigations, but there has been only one new Section 301 investigation since 2001. In 1994, the US government issued a "Statement of Administrative Action", stating that the Administration intends to use Section 301 under the WTO rules, and that it would only impose sanctions under Section 301 with authorization from the WTO Dispute Settlement Body (DSB). In 1998, the European Communities filed a case to the WTO DSB against Section 301, and the Panel came to a preliminary finding that in respect of the statutory language, Section 301 is inconsistent with WTO rules. The US government has initiated a Section 301 investigation in the course of its current trade frictions with China, and imposed huge tariffs on Chinese goods in the absence of WTO authorization. These actions have clearly violated its afore-mentioned commitments, and are completely illegal.

2. Baseless accusations against other countries' industrial policies

As an effective tool to remedy market failures and improve social welfare, industrial policies should not be subject to groundless accusations as long as they are consistent with WTO rules.

The US was among the first to adopt industrial policies. The US rarely acknowledges the adoption of such policies, but its government has in fact undertaken many more industrial policies than the official narrative allows.⁶ Ranging from technological innovation incentives and government procurement, through subsidies on specific sectors and companies, to tariff protection and trade agreements, these industrial policies have played a vital role in enhancing the competitive strength of US industries.

To strengthen its global leadership in manufacturing, the US has in recent years formulated a large number of industrial policies. In the 21st century, and in particular over the decade since the outbreak of the international financial crisis, the US has introduced a number of industrial policies including A Framework for Revitalizing American Manufacturing (2009),⁷ the United States Manufacturing Enhancement Act of 2010,⁸ the Advanced Manufacturing Partnership (2011),⁹ A Manufacturing Renaissance: Four Goals for Economic Growth (2011),¹⁰ A National Strategic Plan for Advanced Manufacturing (2012),¹¹ A Strategy for American Innovation (2011)¹² and the National Network of Manufacturing Innovation: A Preliminary Design (2013).¹³ Such plans are also made for key areas such as the Grid Modernization Initiative (2011), the Clean Energy Manufacturing Initiative (2013),¹⁴ A Roadmap for U.S. Robotics – From Internet to Robotics (2013),¹⁵ the Measurement Science Roadmap for Metal-Based Additive Manufacturing (2013),¹⁶ the National Artificial Intelligence Research and Development Strategic Plan (2016)¹⁷ and A National Machine Intelligence Strategy for the United States (2018)^.18

These policies include, among others, specific measures to adjust and improve government investment to scale up input in manufacturing, to increase government procurement of certain products, to provide credit support to export companies to expand global market, and to fund innovation in key areas of manufacturing.

While formulating and promoting its own industrial policies, the US has made unwarranted accusations against other countries' justified industrial policies. The UNCTAD World Investment Report 2018 pointed out that responding to the opportunities and challenges associated with a new industrial revolution, at least 101 economies across the developed and developing world (accounting for more than 90 percent of global GDP) have adopted formal industrial development strategies over the past 10 years. It was against this backdrop, inspired by US policy papers such as A National Strategic Plan for Advanced Manufacturing and A Strategy for American Innovation, and based on its own national conditions, that China formulated its Made in China 2025 program.

Made in China 2025 is an introductory paper describing a vision, and a market-centered, open and inclusive blueprint for development. The Chinese government has maintained that Made in China 2025 is an open system that is applicable to both domestic and foreign investment. Chinese leaders have stated on several occasions that China welcomes foreign companies to participate in Made in China 2025. China's State Council released a notice in 2017 on measures to expand opening up and actively utilize foreign investment, which made clear that Made in China 2025 policies apply equally to foreign-invested companies and Chinese companies. The paper was formulated in strict accordance with WTO rules to ensure the relevant policies are legitimate, transparent, fair and non-discriminatory in nature. Many foreign enterprises, including US companies, have participated in programs under Made in China 2025 since its implementation.

3. "Long-arm jurisdiction" and sanctions against other countries based on US domestic laws

"Long-arm jurisdiction" refers to the practice of extending one's tentacles beyond one's borders and exercising jurisdiction over foreign entities based on one's domestic laws. In recent years, the US has been extending its "long-arm jurisdiction" to wider areas including civil torts, financial investment, anti-monopoly, export control and cybersecurity. In international affairs, the US has frequently requested entities or individuals of other countries to obey US domestic laws,otherwise they may face US civil, criminal or trade sanctions at any time.

Take export control as an example. To consolidate its technological advantages, the US has long established an all-round export control system. Through the Export Control Act, the Export Administration Regulations and the International Emergency Economic Powers Act, US exporters or exporting users must apply for export licenses. Foreign buyers are required not to violate restrictive regulations such as those on end-use and end-users, otherwise they will be subject to penalties, including being put in the Entity List which will place them under strict restrictions, or even prohibit them from importing from the US. Statistics show that by August 1, 2018, as many as 1,013 entities from around the world have been put on the Entity List of the US Department of Commerce. This action has undermined not only the interests of companies concerned – including those from the US – but also the development rights of developing countries.

The US is also vigorously reviewing and revising its export control legislation to strengthen its "long-arm jurisdiction". On August 13, 2018, the US President signed the National Defense Authorization Act 2019, an important part of which is the Export Control Reform Act (ECRA). The ECRA further tightened restrictions on foreign-holding companies, intensified controls on "emerging and basic technologies", and mandated an inter-agency process to boost law enforcement capabilities. Recently, the Bureau of Industry and Security of the US Department of Commerce added 44 Chinese entities to its Entity List for "acting contrary to the national security or foreign policy interests of the United States". Such measures create obstacles for Chinese businesses to conduct normal trade and are in fact an extension and upgrading of "long-arm jurisdiction".

4. Internationalizing domestic issues and politicizing economic and trade issues

The current US administration, in response to domestic political issues, is choosing to internationalize domestic issues and politicize economic and trade issues, and blaming other countries for its own problems.

It has erroneously attributed unemployment caused by domestic policy and institutional flaws to international trade. The US administration has accused other countries of "stealing US jobs through unfair trade". China, as the biggest source of the US trade deficit, is a convenient primary target. However, statistics from the United Nations show that between 2001 and 2017, China-US trade expanded by a factor of 4.4, and yet unemployment in the US dropped from 5.7 percent to 4.1 percent. In particular, while US imports from China surged from 2009 onward, unemployment in the US saw a steady decline during the same period. The causal relationship between imports of goods and job losses, as claimed by the US administration, does not exist (see Chart 12). A report from the US Congressional Research Service in 2017 reveals that between 2010 and 2015, the number of US manufacturing jobs rose by 6.8 percent even though US imports from China in that sector increased by 32.4 percent.¹⁹

Chart 12: US Imports of Goods from China and US Unemployment

Source: the Bureau of Economic Analysis of the Department of Commerce and the Department of Labor of the United States

In fact, unemployment of some social groups in the US is caused by flaws in domestic economic policy and the absence of proper redistribution and reemployment mechanisms against the backdrop of technological advances and economic restructuring. A study by Ball State University in the State of Indiana finds out that almost 88 percent of the 5.6 million jobs lost in manufacturing in the US between 2000 and 2010 can be attributed to productivity growth.²⁰ In a market economy where all production factors are in flux, no job lasts forever. The evolution of comparative advantages of the US has had different impacts on job creation in different industries. Decrease of jobs in some industries such as traditional manufacturing is a normal phenomenon in the course of economic development and structural adjustment. The US government should have adapted to the overall trend of economic structural adjustment, taking proactive and effective measures to improve redistribution and reemployment and to help the unemployed find jobs in emerging industries. However, constrained by its traditional distribution mechanism and vested interests, the US government has failed to establish appropriate redistribution and reemployment mechanisms in time. The result has been the build-up of long-standing unemployment among some social groups. This has provided the breeding ground for political populism and isolationism.

The current US administration's attempt to blame international trade and exporting countries for domestic unemployment is not supported by facts; it aims to deflect public attention in the face of intractable domestic political problems. Without truly resolving its own deep-seated structural problems, the US attempt to bring the manufacturing sector back home through protectionist measures is a completely counter-productive move. This beggar-thy-neighbor and lose-lose approach runs counter to economic rules and will only make the world economy less efficient and trigger opposition from countries around the globe. The US will do as much damage to itself as it will to others.

5. The current US administration is violating its own commitments

Respect for rules and contract has been the foundation of the market economy and the international order since the advent of modern times. It makes cooperation between different individuals, groups and countries possible, which is a defining feature of civilized human society. The current US administration has turned its back on universally-recognized and widely-observed norms governing international relations, and made a series of moves in violation of its own commitments. The opportunism of the US toward international relations has been widely challenged and criticized by the international community. The short-sighted actions of the US in pursuit of short-term interests harm its international credibility, and will undermine its international standing and prejudice its strategic interests.

The US administration shows no respect for the sanctity of international agreements and disrupts global governance order. A country should uphold the commitments and agreements it has entered into regardless of government succession. This is essential for a country's credibility. Exaggerating problems in the multilateral system and differences between countries, the current US administration, unwilling to bear the cost of upholding the international order, has taken a selective approach to international rules. It has withdrawn from international organizations such as UNESCO and the UNHRC, pulled out from the TPP and the Paris Agreement that the previous US administration worked so hard to conclude, and is demanding renegotiation of the North American Free Trade Agreement (NAFTA) and US-Korea Free Trade Agreement.

The global political and economic governance system has only become what it is through constant improvements, starting from the inception of the United Nations (UN), the World Bank, the International Monetary Fund (IMF) and the General Agreement on Tariffs and Trade (GATT). The WTO is an important multilateral trading regime with a total of over 160 members. It is essential to global trade cooperation, and is widely respected and recognized in the world. However, the US frequently violates WTO rules. The number of cases where members requested a suspension of the application of tariff concessions, or suspended tariff concession obligations to the US due to the latter's failure to comply with the rulings of the DSB, accounted for two thirds of all such cases between 1995 and 2015.²¹

These actions of the US violate international contracts and disrespect its trading partners, and what is more, undermine its credibility as a country. The "Global Risks Report 2018" released by the World Economic Forum pointed out that global risks will intensify in 2018, as the US erodes multilateralism and blocks appointments to the WTO's appellate body.

The US administration has undermined the market mechanism through direct intervention in business operations. The current US administration has time and again overstepped its purview to directly meddle with market players. For instance, it has demanded that Apple and some other American companies move their overseas factories back to the US, regardless of market rules. The administration has also intimidated and obstructed American companies making investments abroad. For instance, on January 3, 2017, General Motors was threatened with a heavy border tax for continuing to make Chevrolet Cruze models in Mexico.²² On July 3, 2018, Harley-Davidson was warned not to move part of its operation out of the US.²³ Executives of American companies have been named and shamed on social media, as the administration tightens supervision over normal merger deals under various pretexts.

The US administration has repeatedly backtracked and reneged on its commitments in bilateral trade negotiations. China sets great store by a stable China-US relationship. It has actively responded to the trade concerns of the US, especially since 2017. Multiple rounds of talks have been conducted with the US administration with utmost sincerity and patience, in an effort to narrow differences and solve problems. In response to a strong request from the US, China sent a delegation to the US for trade talks between late February and early March 2018. Yet on April 3, the US announced a 25 percent tariff on a list of Chinese exports worth US$50 billion. Despite this repeated backtracking and in the face of rising demands from the US, China has demonstrated complete sincerity in seeking a negotiated solution, and sat down for earnest consultations with a visiting US delegation in early May. At the US request, China sent another delegation to the US which actively responded to the US concerns in negotiations between 15 and 19 of May. Thanks to the strenuous efforts of both sides, a consensus was reached "not to fight a trade war", and a joint statement was released on May 19. However, only 10 days later, the US administration tore up the freshly inked joint statement and broke its promise not to engage in a trade war. It bypassed the dispute settlement system of the WTO to announce massive tariffs on Chinese exports, thus unilaterally starting a new phase of conflict (Box 7).

¹   Section 232 investigation is conducted by Department of Commerce on the basis of the authorization by Section 232 of the Trade Expansion Act of 1962to determine whether the importation of an article in question threatens the national security of the United States. A report is presented to the President within 270 days of initiation. The US President makes a determination on whether to take final measures on the imports concerned within 90 days.

²   Chad P. Bown@ChadBown, May 27, 2018.

³   "Section 201"refers to Sections 201-204 of the US Trade Act of 1974. According to the section, the United States International Trade Commission (USITC) initiates global safeguard investigations to determine whether an article is being imported in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry and presents a report and recommendations to the President within 120 days of initiation. Based on the authorization of law, the President makes a determination on final measures within 140 days of receipt of the USITC report.

⁴   "Section 301"refers to Section 301 of the USTrade Act of 1974. According to the Section, the US may initiate investigations against trade practices of other countries it deems"unjustifiable"and negotiate with relevant governments. The President may make a final decision to retaliate through imposing duties or other import restrictions, or suspending relevant agreements.

⁵   Peterson Institute for International Economics (https://piie.com):"Rogue 301: Trump to Dust Off another Outdated US Trade Law?"

⁶  Robert H. Wade:"The American Paradox: Ideology of Free Markets and the Hidden Practice of Directional Thrust,Cambridge Journal of Economics, May 2017.

⁷   The Executive Office of the President of the US, December 2009.

⁸   The Executive Office of the President of the US, August 2010.

⁹   The Executive Office of the President of the US, June 2011.

¹⁰   The National Association of Manufacturers of the US, December 2011.

¹¹  The Executive Office of the President of the US and National Science and Technology Council, February 2012.

¹²   The Executive Office of the President of the US, 2011.

¹³   The Executive Office of the President of the US, National Science and Technology Council, Advanced Manufacturing National Program Office, January 2013

¹⁴   The US Department of Energy, April 2013.

¹⁵   The Office of Science and Technology Policy of USA, March 2013.

¹⁶   The National Institute of Standards and Technology of USA, May 2013.

¹⁷   The National Science and Technology Council,October 2016.

¹⁸   The Center for Strategic and International Studies, March 2018.

¹⁹   Wayne M. Morrison: "China-US Trade Issues", March 6, 2017, Congressional Research Service.

²⁰   Ball State University, The Myth and the Reality of Manufacturing in America, June 2015.

²¹   Arie Reich: "The effectiveness of the WTO dispute settlement system: A statistical analysis", Department of Law, European University Institute, November 2017.

²²   Donald J.Trump @realDonaldTrump, January 3, 2017.

²³   Donald J.Trump @realDonaldTrump, July 3, 2018.