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RULE OF LAW

China is winning the trade war

Reuters/ Andrew Harnik
US trade negotiator Robert Lighthizer leads US China hawks.
  • Tim Fernholz
By Tim Fernholz

Senior reporter

The World Trade Organization ruled today that US tariffs on Chinese imports are illegal under global trade rules.

The new taxes in question were imposed on Americans by president Donald Trump, ostensibly put in place to combat Chinese efforts to steal intellectual property from US companies through coercive investment pacts, among other tactics. Now, the WTO says the US’s blanket tariffs aren’t a permissible solution under trade agreements the US signed on to starting in 1994.

The ruling itself won’t matter too much—the US can appeal it, and because the US is refusing to appoint new members to the WTO’s appellate board, the end result is legal limbo.

But don’t mistake that for a US victory. After all, it typically wins WTO fights with China. This new ruling marks another step towards trade based on economic power rather than on rules, and the panel’s report underlines the US failure to build a coalition in opposition to China’s exploitation of global trade rules.

Consider that traditional US allies Australia and the European Union both weighed in on the dispute—in China’s favor. Both submitted formal comments saying that they think China’s exploitation of foreign intellectual property is a problem, but that the US arguments about multilateral trade rules were incorrect.

“A WTO Member cannot waive unilaterally its own WTO obligations whenever it considers that another Member is acting ‘unfairly’ and that the WTO Agreement does not provide adequate remedies,” the European lawyers wrote. “Such unilateral responses to perceived unfair acts of another Member are themselves both unfair and illicit under the WTO Agreement.”

The US argued that its tariffs on $200 billion worth of imports was allowed under an exception for enforcing public morals. This exception is typically cited to block imports like violent media, pornography, or gambling materials. The US said that China’s technology transfer policies violated American public morals.

The panel didn’t weigh in on whether or not that’s the case, but it did say that the tariffs imposed under the exception have to be linked to the moral issue at play. In effect, a country can impose trade barriers on specific imports it sees as immoral, but it can’t attempt to use indiscriminate tariffs as economic coercion. The panel hinted that China’s retaliatory duties are also illegal, but said the US had not challenged them.

The US also argued that no ruling was necessary because it had already reached a resolution with China, in the form of Beijing’s retaliatory tariffs and the “phase one” trade deal that so far is not being met. The panel disagreed, mainly on the basis of China’s insistence that the dispute was ongoing.

And so it remains. Americans will continue to pay millions in taxes on Chinese imports, with little to show for it.

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