China is seeking permission from the World Trade Organization (WTO) to impose tariffs on the United States. China is expected to petition for authorization at a special meeting of the Dispute Settlement Body on September 21st. The move comes after reports from the White House indicating that President Donald Trump is ready to forge ahead with $267 billion in new sanctions.
Specifically, the Chinese government alleges that the United States used illegal methods to determine which goods the Chinese were dumping. China’s dispute had been opened back in 2013, while the U.S. was still under the leadership of Barack Obama. The Obama administration had accused the Chinese of dumping $8.4 billion worth of electronic, light industry, metals, and other materials into the United States.
Dumping refers to the practice of selling goods below their production cost to manipulate the market. The companies or governments that engage in dumping are essentially hoping to wipe out their competition so they can corner the market. China and Chinese companies have been accused by numerous companies and governments of dumping, allegations that the Chinese government has generally denied.
Last month, the WTO complained about $16 billion worth of sanctions on other goods as well. The World Trade Organization tries to normalize trade and standardize trade disputes. In theory, the WTO could fine the United States if it is found to have violated trading agreements. In practice, however, President Trump has previously warned that the United States will pull out of the organization. Any actions against the U.S. by the WTO might decide the President’s stance.
China’s Exports Slowing
China’s appeal to the WTO comes as its export growth has slowed. China’s exports grew by 10 percent in August, down from 12 percent in July. This comes even as the Chinese Renminbi has weakened versus the dollar. Dropping currencies tend to spur exports as it becomes cheaper for foreigners to buy the domestically produced goods.
Now, the United States is set to roll out sanctions on another $267 billion worth of goods. If these sanctions are put in place, the vast majority of China’s total exports to the United States will face sanctions. The Trump administration has already hit China with $200 billion worth of sanctions.
China has promised to respond. However, the United States exports relatively little to China. In 2017, the United States exported just $130 billion worth of goods to China, while taking in over $500 billion. So far, the trade deficit with China has been widening throughout 2018, even as the Trump administration tries to close it.
China’s stock markets have been hammered over the last few years. The Shanghai composite index has fallen 47 percent since mid-2015 while Shenzhen’s composite has declined 55 percent. Besides worries over the impact of the ongoing trade war, many investors fear that local government debt could soar while the country’s finances are unstable, and that asset bubbles have inflated.
The Chinese government has been directing state-linked entities to buy up stocks in an effort to stave off the decline. If exports continue to slow or the trade war deepens, their efforts may not be enough. Even if conditions hold steady, China’s economy has looked increasingly shaky over the past few years.