How to Deal with the Question of China

U.S. Trade Policy is Still a Question Mark

After more than two months in office, President Trump’s trade policy remains hard to assess. Key officials are not yet confirmed and in place, most importantly the U.S. Trade Representative (USTR), whom the Congress holds responsible for developing trade policies and leading U.S. trade negotiations. On March 14, the Senate Finance Committee held a hearing to consider Robert Lighthizer as USTR but his confirmation is still pending.

Mr. Lighthizer is a well-known and accomplished trade lawyer, a partner at Skadden, Arps, Slate, Meagher, and Flom. He previously served as Deputy USTR in the Reagan Administration and as the Staff Director of the Senate Finance Committee, a record of deep professional experience for the office. His pre-written testimony was well-received, but what makes most hearings interesting is what they reveal about the concerns of elected officials and how the nominee responds to them. Mr. Lighthizer’s responses to questions from Members of Congress offered some interesting clues to the intentions of Trump’s incoming trade team.

U.S.-China Trade in the Trump Administration

Unsurprisingly, problems with China were frequently mentioned by Senators of both parties. One exchange, with Sen. Tim Scott (R-SC) elicited a particularly interesting response. Here’s the transcript:

SEN. SCOTT: If you look at the tools at your disposal, if you found the WTO to be ineffective, are there other tools that you would need, that you would recommend if you are confirmed as our trade rep?

MR. LIGHTHIZER: I don’t believe the WTO is set up to effectively deal with a country like China and their industrial policy. I just feel it was never really intended to deal with those kinds of situations. So, we have to use the tools we have and then I think we have to sit down with members and find a responsible way to deal with the problem by creating some new tools.

Was the WTO Ever Adequate to Address the Question of China?

Mr. Lighthizer presents the notion that GATT rules, including GATT 1994 which created the WTO and the Dispute Settlement Understanding, are not well-suited for the challenges posed by China’s economic policies. Practically speaking, the GATT was the creation of the big traders at the time—primarily the Group of 7 (G7) industrial democracies that include the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. GATT disciplines were meant to cope with the major problems of the day. While heavy government intervention (like China’s state capitalism) may have been practiced in a narrow set of sectors by a few G7 members in the 1980s and 1990s, no one could have anticipated the issues which arise from a very large, export-oriented, state-directed economy like China.

Without mentioning it specifically, Mr. Lighthizer’s comments also suggest that the China of 2017 is a different entity than the China of 2001 (the year of its WTO accession). In terms of scale this is no doubt true, but many observers question whether China’s current leaders share the orientation toward economic reform held by China’s leadership at the time of accession.

If Not, What’s the Answer?

In the 1980s when Mr. Lighthizer served as Deputy USTR, the United States and other countries dealt with a variety of big trade problems outside of the GATT framework. They had to because the GATT’s trade disciplines were more limited and lacked binding dispute settlement procedures; those were put into place with the WTO in 1995. This formative perspective may still inform Mr. Lighthizer’s views on U.S. engagement in the global trading system. How his world view translates into trade policy initiatives in the coming months is a space worth watching.

Feature photo credit: TASOS KATOPODIS/AFP/Getty Images

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