Summer Brings New Round Of Trade Wars

Trade wars heat up with summer arrival

After a brief cooling down period, the wars that have rattled China’s economic relationships with many of its largest trading partners were back in the headlines last week with developments in 2 cases, one involving the US and the other India. The pair of new developments comes just weeks after China levied its own punitive tariffs on a different set of products from the US and European Union.
Both China and its major trading partners need to stop and reflect on these latest developments, which look like the start to a new flare-up in a series of trade wars that damaged their relationships in 2012. Rather than returning to a combative posture that characterized the last round of trade wars, all parties involved should look to negotiations or arbitration as a way to solve their disputes.

This kind of more positive approach could be particularly important for China, as its economy heads into a new phase of slower growth where it can’t afford to lose the billions of dollars in exports that ultimately get affected by these kinds of trade wars. China’s major trading partners also end up losers from such wars through higher prices, as well as slower development in emerging and strategically important sectors like solar energy.

China’s trade wars showed signs of spreading beyond its recent conflicts with the West when India announced last week it would levy anti-dumping tariffs against solar panels made in both China and the US, as well as Taiwan and Malaysia. (English article) The ruling followed a 3 year investigation, and set punitive duties that equate to extra tariffs ranging from 5 to 110 percent.

India made the ruling as it embarks on an aggressive campaign to raise its solar power-generating capacity to 20 gigawatts by 2022 from the current 1.7 gigawatts. The country imported around $1 billion worth of solar panels last year and domestic producers currently have very small fraction of the market, making the new duties look highly protective.

Meantime in a separate trade-related case, the World Trade Organization last week ruled in favor of the US in a complaint against China over unfair duties on imported cars. (English article) The court found that China illegally imposed anti-dumping tariffs of up to 21.5 percent in 2011 against large cars and SUVs imported from the US, in a move that the US said affected about $5.1 billion in exports in 2013.

China ultimately let those duties expire, but this latest ruling will undoubtedly inflame trade tensions in a relationship that has already come under stress this year. Reflecting the intensifying tensions, China earlier this month announced separate new anti-dumping tariffs against some seamless steel tubes imported from the US and European Union.

The biggest case at the heart of the current trade wars revolves around the solar panel sector, which was the focus of several high profile disputes that saw the US and EU levy anti-dumping tariffs against Chinese products over the last 2 years. China retaliated by levying its own tariffs on imported US polysilicon, the main component in solar panel manufacturing, and on European wines, one of the EU’s leading exports.

But after all the earlier heated rhetoric, a major breakthrough occurred last year when the EU and China reached a landmark negotiated settlement to end their solar impasse. Not long afterwards, China also dropped its investigation in the European wine case.

Several groups were calling for a similar mediated settlement in the US-China solar panel dispute, with parties from both sides supporting such a move. But instead, the US opened a new investigation early this year into the matter, aiming to close a loophole that was allowing many Chinese solar panels to skirt earlier tariffs. A decision on that matter is expected early next month, and new anti-dumping tariffs are almost inevitable after the US made a preliminary ruling against China in February.

With only 2 weeks before the next US ruling, a negotiated settlement of the issue looks unlikely before the announcement, which will only lead to heightened tensions. Before the situation gets out of control, all of the parties need to make more effort to open dialogues aimed at solving their disputes through mediation.

Such negotiations are never easy and all sides will inevitably have to make big compromises. But the outcome is always one that is acceptable to everyone, meaning trade relations can move forward in a more positive manner instead of constantly getting derailed by inflammatory unilateral actions.

Bottom line: China and its major trading partners need to learn to negotiate solutions to their trade disputes or risk seeing another round of trade wars this summer.

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