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U.S. Spins False Narrative on China’s Market Policies

Mar 08, 2024
  • Ma Xue

    Associate Fellow, Institute of American Studies, China Institutes of Contemporary International Relations

China and the United States held their third Economic Working Group meeting in early February — the first such gathering in 2024 and also the first face-to-face meeting to be held in China. The meeting underscored the ongoing and frequent communication between top leaders of both nations. Recognizing the complexity of bilateral relations and the scale of global challenges, the two nations maintained open channels of communication. They exchanged views on their respective domestic macroeconomic outlooks and discussed possibilities of cooperation to address common challenges — including debt issues confronting low-income and emerging economies.

The agenda of the meeting, however, reveals that Washington is really focused on China’s “overcapacity” and “non-market policies.” In particular, U.S. officials raised concerns over “the impact of China’s industrial policy practices and overcapacity on U.S. workers and businesses,” which indirectly reflects their entrenched misperceptions and misguided approach.

First, the United States clings to an outdated understanding of China’s market economy. It believes that through financing, direct subsidies and collaboration between businesses and the government, China has facilitated the development of innovative high-tech enterprises in such fields as aerospace, renewable energy and semiconductors. As a result, it says, China has bolstered its international competitiveness and dumped significantly cheaper products around the world.

A notable example is electric vehicles, a sector in which China has overtaken the United States and Europe, resulting in a decline in market share for U.S. companies. More important, Washington associates China’s alleged overcapacity with domestic employment issues, claiming that China’s export of cheap products drives down prices worldwide. This, the argument goes, makes it difficult for U.S. steel and other industries to survive, thus leading to job losses.

In truth, after 40 years of reform, the prices of most products in China are now determined by market supply and demand. At present, innovation initiatives in the country are primarily driven by small and medium-sized private businesses that hone their innovation capacity in an environment of domestic and international competition. They eventually emerge as pioneers of new technologies, new production techniques and new business models. However, Washington’s understanding of the Chinese economy hasn’t been updated. It fails to acknowledge China’s economic transformation and uses arbitrary standards to justify its own unfair treatment of Chinese imports.

Second, the United States stubbornly clings to trade protectionism, another misguided approach. Its claim that China is a non-market economy is based on a methodology that takes into account prices in a third country as a way of valuing Chinese inputs; but it loses sight of the differences between China and the third country in production techniques, business scale and final products. The result is a distortion of valuation.

The designation of China as a non-market economy provides the U.S. Department of Commerce with significant discretionary power to decide whether or not China engages in dumping practices. This power of discretion is often expanded or abused; consequently, China has been disproportionately the most frequent target of anti-dumping and countervailing cases initiated by the United States — a trend that is likely to persist into the foreseeable future. Moreover, the United States often imposes double penalties on Chinese goods by applying not only countervailing duties but also anti-dumping duties typically reserved for genuine non-market economies.

Third, while rolling out its own industrial policies, Washington has forcibly promoted the New Washington Consensus in recent years, seeking to leverage its national power on a global scale. It adopted the Inflation Reduction Act and the CHIPS and Science Act to subsidize green technology and semiconductor industries and attract foreign investment, hoping that these moves will inhibit the development of China’s strategic industries. Since it has abandoned principles of the free market, many industrial policies it once questioned have gained traction in the country.

In addition, the U.S. lashes out at government subsidies and investment in China, with the goals of securing victory over China in emerging industries and maintaining leadership in critical technological fields. After all, the history of the Industrial Revolution indicates that technological leadership brings unprecedented benefits to a country in economic and military fields and enables innovation at a faster, more efficient rate, thus increasing global market share and securing a dominant position in industrial production worldwide.

Washington’s claim that China embraces so-called non-market policies is detrimental not only to the bilateral relationship but also to itself.

First, it doesn’t help alleviate the trust deficit between the two nations. Washington’s fixation on non-market policies threatens to undermine the mutual trust that serves as the cornerstone of bilateral relations, leaving little leeway for either side to express goodwill in negotiations and weakening the credibility of their promises.

Second, the claim about China doesn’t contribute to managing differences between the two nations. Originally, Washington sought to reduce the possibility of conflict through communication: It wanted to reduce the risk posed by China’s reactions by “managing” the differences. Economic and trade relations are the most important sectors in which both nations can make a difference in their overall relations; these are crucial to controlling competition, minimizing intense emotional confrontations and avoiding strategic misjudgments. However, Washington’s current emphasis on non-market policies is not intended to reduce the potential for conflict. Rather, it is about strengthening deterrence and pursuing agreements in its favor.

Third, the claim is detrimental to the image of the United States as a responsible participant in the international community. To many observers around the world, Washington is bent on world domination, no matter what course of action it may adopt, from forging the Washington Consensus and promoting the New Washington Consensus to championing liberalism and wielding state power. While trying to protect domestic industries through government intervention, technological blockades and financial subsidies, Washington hypocritically lashes out at China’s so-called non-market policies suggests they cause trouble in domestic employment.

Unfortunately, such practices don’t help enhance America’s international image or boost its global reputation.

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