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The Roots of the Tariff War: China’s Impact on the WTO (by Brig Hemant Mahajan)

by Brig Hemant Mahajan
April 8, 2025
in BRI, Commentary, Economics and Commerce, Indo-US Relations, International Trade
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“China’s Trade Policies: A Catalyst for Global Economic Disruption” “How China’s Trade Practices Distorted the Global Economy” “The Cost of China’s Economic Rise: Global Trade Imbalances”,

 

Goyal: China’s unfair practices to blame for tariffs”China’s Unfair Trade: Fueling Global Economic Tensions”-

Commerce minister Piyush Goyal blamed the present state of affairs on tariffs, on the world turning a blind eye to unfair trade practices adopted by China for over two decades after its admission to the World Trade Organization in 2001, driven by the narrative of low-cost manufacturing and cheap goods.

He urged the world to act collectively to restore fair trade practices to preserve multilateral trade. He called upon India to turn the tariff crisis into an opportunity just like the country did during the Y2K (year 2000 IT transition) and Covid challenges. He also called upon Indian companies to be nationalistic and collaborate to support downstream and upstream players and align with national goals.

 Speaking at an India Global Forum event in Mumbai, Goyal said that despite Monday’s stock market crash, India, with a 3% decline, was at the bottom of the list of countries ranked by fall in key indices with others having declined as much as 9%.

Goyal said Trump’s tariff war was a culmination of decades of imbalances which began with China gaining entry into the WTO and growing by leaps and bounds. “But what everybody closed their eyes to was that this growth was fuelled by unfair trade practices. This growth happened at the cost of fair play. Its foundation lay in actions which, by the rules of the game, would be considered improper,” said Goyal.

 “The current state of play, in some way, is a culmination of almost three decades of this attack on several economies. And because we played by the rules of the game-because India remained true to our commitments at the WTO, as did most other well-meaning countries-we saw, starting from there, an era of unprecedented damage to national economies, to the manufacturing ecosystem in large parts of the world,” said Goyal. “Many parts of the world was convinced China would reform itself-would transform its processes, bring transparency into its economy, and work on fair terms in the global economy”. It did not happen.

The concerns raised by Commerce Minister Piyush Goyal regarding China’s trade practices and their impact on the global economy have hit the nail on the head. Here’s a breakdown of the key issues:

How China’s Practices Have Impacted the WTO and Global Economies:

  • Unfair Subsidies and State Support:
    • China’s economic model involves significant state intervention, including subsidies to domestic industries. This has created an uneven playing field, allowing Chinese companies to undercut competitors in other countries.
    • This practice goes against the spirit of free and fair trade that the WTO aims to uphold.
  • Intellectual Property Theft:
    • Concerns persist about the theft of intellectual property and forced technology transfers, which give Chinese companies an unfair advantage in innovation and development.
    • This undermines the incentive for companies in other countries to invest in research and development.
  • Currency Manipulation:
    • Accusations of currency manipulation have been made, with some arguing that China has artificially kept its currency undervalued to make its exports cheaper.
    • This can distort trade flows and harm domestic industries in other countries.
  • “Non-Market Economy” Status:
    • The debate surrounding China’s “non-market economy” status within the WTO has been a source of tension. This status allowed for certain trade defenses against China, but its expiration has led to disputes.
  • Impact on Global Economies:
    • Job Losses: Manufacturing job losses in countries like the United States and within the European union, are in part attributed to the flood of cheaper Chinese imports.
    • Industrial Decline: Certain industrial sectors in various nations have struggled to compete with China’s manufacturing dominance.
    • Trade Imbalances: Large trade deficits with China have become a significant concern for many countries.
    • Supply Chain Dependencies: The world has become overly reliant on Chinese supply chains, creating vulnerabilities.

Measures to Undo the Damage:

Addressing these issues requires a multifaceted approach:

  • WTO Reform:
    • Strengthening WTO rules to address unfair subsidies, intellectual property theft, and currency manipulation is crucial.
    • Reforming the dispute settlement system to ensure timely and effective enforcement of trade rules.
  • Diversification of Supply Chains:
    • Reducing reliance on China by diversifying supply chains to other countries is essential for economic resilience.
    • This involves investing in domestic manufacturing and fostering trade partnerships with other nations.
  • Strengthening Domestic Industries:
    • Governments should support domestic industries through investments in research and development, infrastructure, and education.
    • This will help them compete in the global marketplace.
  • International Cooperation:
    • Countries need to work together to address China’s trade practices and promote fair competition.
    • This includes coordinating trade policies and pursuing multilateral agreements.
  • Increase trade transparency:
    • There is a need to increase the transparency of trade practices, and the sharing of information between nations.
  • Strategic trade policies:
    • Nations must create strategic trade policies, that protect there own industrial bases, and promote fair trade.

It’s important to recognize that the relationship with China is complex, and any solutions must balance the need for fair trade with the benefits of global economic integration.

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