Foiled Again: China Fails to Gain Market Economy Status in the US

On the eve of US President Donald Trump’s visit to China, the trade waters have been stirred up further by a pair of rulings issued by the US Department of Commerce late on Friday, October 27.  In a 205-page memo, Commerce officials argued that China remains a non-market economy (NME) because “it does not operate sufficiently on market principles to permit the use of Chinese prices and costs for the purposes of the Department’s antidumping analysis.”  This determination was promptly employed in a case over aluminum foil, where a preliminary determination calculated that Chinese companies will need to pay antidumping duties ranging from 97-162 percent.  The debate over China’s economic status has been long and fraught.  The crux of the issue, to simplify matters significantly, is really two-fold.  First, it is about practical consequences related to classification determinations.   Second, it is about issues of identity and obligations.

Tougher Trade Enforcement Means What, Exactly?

In Asia, especially, many people are also puzzled about how dumping is determined.  After all, costs in this region are much lower than costs in North America.  If you are just comparing costs of production, Asia could be found “guilty” all the time of dumping.  Ah—this gets to an interesting problem with trade remedies.  The methods used for determining “guilt” are, indeed, a major issue.  When the US argues that it will engage in tougher enforcement, part of what it means is that it will more aggressively pursue trade remedies.  Officials will crack down on firms assumed to be dumping stuff into the American market.  Expect to hear a lot more about AD and CVD in the coming weeks and months, including more new and novel ways to interpret trade remedies with potentially serious implications for firms.

The Response from China

So, what happens when President Donald Trump, urged on by his equally enthusiastic advisors, significantly ramps up enforcement efforts against China?  Or moves beyond standard measures like anti-dumping lawsuits and does impose tariffs or starts to block trade?  These are critically important questions that ought to be asked and answered prior to American actions.  The response matters not just to the United States and China or to American and Chinese companies but much more broadly to Asia and, potentially, to the wider world.