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US Announces Additional Trade Enforcement Actions Against China

The President announced in his State of the Union address a Trade Enforcement Unit that would broadly look at unfair trade practices around the world, particularly with China, and use the international mechanisms available to stop them. The first post-SOTU case of the new trade enforcement policy concerns rare earth minerals:

Five separate issues — involving auto parts, cars, solar panels, anti-subsidy laws and rare earth metals — are all likely to see action by American officials, European officials or both, starting as soon as this week.

On Tuesday, in fact, the United States, the European Union and Japan plan to file a formal “request for consultations” with China at the World Trade Organization about Chinese restrictions on exports of rare earth metals. President Obama will personally announce the move, a senior administration official said. Such a request is the first step in a process that will lead to a full-fledged legal case at the W.T.O. by early summer unless China unexpectedly agrees to the West’s demands to ease the export of rare earths — materials vital to various sophisticated technologies.

That move and the other trade issues are likely to meet Chinese resistance, particularly as senior officials in Beijing are jockeying for position ahead of a Communist Party conclave this autumn that is expected to choose a slate of leaders for the country for the next five years or more.

In fact, US trade representative Ron Kirk announced the rare earths dispute today, which the US will take up at the WTO. Rare earth minerals – which aren’t totally rare – are used in advanced manufacturing like car batteries, wind turbines and energy-efficient lighting. China has 60 days to resolve the matter at the WTO, or else the US will move to call a dispute settlement panel, where the WTO will rule on it. The EU and Japan filed their disputes today as well. “The launch of this case against China today, along with the President’s creation of the Interagency Trade Enforcement Center, reflects the Obama Administration’s commitment to make all of our trading partners play by the rules. We will continue fighting for a level playing field for American workers and manufacturers in order to grow our economy, and ensure open markets for products made in America,” Ambassador Kirk said in a statement. This is more from the press release:

China imposes several different types of unfair export restraints on the materials at issue in today’s consultations request, including export duties, export quotas, export pricing requirements as well as related export procedures and requirements. Because China is a top global producer for these key inputs, its harmful policies artificially increase prices for the inputs outside of China while lowering prices in China. This price dynamic creates significant advantages for China’s producers when competing against U.S. producers – both in China’s market and in other markets around the world. The improper export restraints also contribute to creating substantial pressure on U.S. and other non-Chinese downstream producers to move their operations, jobs, and technologies to China.

On a conference call, a senior Administration official who requested anonymity as a condition of the call said that the rare earth case builds on a strong record on trade enforcement, beginning with a previous case on tires. As the President mentioned in the State of the Union, there are now more than 1,000 tire manufacturing workers in the US as a direct result of that action to end cheap Chinese tire dumping. Other successful WTO challenges proceeded that.

Officials expressed hope that China would use the 60-day process to alleviate the concerns of the international community on rare earth minerals. But many countries, they said, are looking to the supply side to mine their own minerals for advanced manufacturing production, so the world isn’t as reliant on China. Since the WTO has already ruled that China needs to eliminate export taxes on rare earths, the threat of WTO action should be enough to effect change here.

Here we see the US using international structures to put pressure on China’s mercantilist policies, because that’s clearly what works best. In the case of Chinese currency, Congress and the executive branch have largely backed off seeking a rebalancing of the renminbi. And predictably, their currency has weakened again, giving their manufacturing sector a competitive advantage. The renminbi has fallen against the dollar this year.

Additional trade actions could come on auto parts, vehicles, solar panels, and manufacturing subsidies generally. Congress just passed a bill that will allow US companies and labor unions to bring anti-subsidy cases against China, and for the US to impose duties on those violators.

So I think we can see what works with respect to trade enforcement and China: an aggressive strategy that does not simply trust the other side to do the right thing.

UPDATE: Alliance for American Manufacturing Executive Director Scott Paul welcomed the news in a statement. “It’s clear that the Administration’s trade agenda is shifting to more aggressive enforcement, which is welcome news for America’s workers and businesses as they face both subsidized Chinese competition in America and restricted access to China’s marketplace.”

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David Dayen

David Dayen