In One Sentence

• After the United States rejected two rulings in the World Trade Organization (WTO) against its tariffs on China, citing the national security exception, Washington and Beijing accused each other of undermining the WTO system and disrupting global trade.
• Industry groups are asking the Biden administration to clarify its semiconductor export control measures and say that the “complex,” “novel” and “ambiguous” measures hinder the competitiveness of the U.S. industry. 
• The Biden administration is considering prohibiting any U.S. exports to Chinese tech company Huawei. 
• The United States concluded an agreement with Japan and the Netherlands to restrict the exports of certain advanced semiconductors and chip-making equipment to China.

Mark the Essentials

• The U.S. has also opposed China’s “economic coercion” in cases such as China’s restrictions on Lithuanian goods. China is being hauled to the WTO dispute resolution process by the European Union over the matter but has rejected the U.S.’s request to join the dispute as a third party.
• On the sidelines of the World Economic Forum in Davos, trade ministers from 23 WTO members said they would prioritize the restoration of “a fully functioning dispute settlement mechanism” in future meetings of the WTO.
• Lam Research Corp., a U.S. company specializing in semiconductor manufacturing equipment, reported a shrinkage of revenue by 17% in the fourth quarter of 2022, in part due to declining demand in China and other Asian markets over concerns of Washington’s export control restrictions.
• Criticizing the United States’ “sneering indifference towards trade and in particular the WTO,” former WTO spokesperson Keith Rockwell argued that the United States has left the global multilateral trade system without “leadership” and left U.S. trade partners “unsure about Washington’s strategic vision.”

Keeping an Eye On…

• The Trump and the Biden administration’s argument for imposing unilateral, sky-high and now-judged-to-be illegal tariffs on China has not aged well. U.S.-China goods trade reached $680 billion in 2022, surpassing the prior record of $663.5 billion in 2018—the year the initial tranche of Sections 232 and Section 301 tariffs was imposed. Meanwhile, the bilateral trade deficit clocked in at $382.9 billion—the second largest on record after the $418 billion racked up in 2018. Much like the fate of the Trump-Biden tariffs, trade ‘friendshoring’ in the name of supply chain resilience may be chic today but it will not age well either. In the currency arena, the U.S. and key allies are capable of maintaining a lock on the plumbing of the global payments and settlement infrastructure. Given the dollar’s dominance, currency weaponization is a workable option. In the core technologies area, the U.S. and western partners enjoy significant pockets of advantage. As such, controls can be advantageously deployed—so long as they are restricted to truly ‘core’ technologies and cartelized smartly. In the trade arena, however, the horse has already bolted. China trades more intensively with a larger number of Indo-Pacific countries than the U.S. does, and this gap will only get larger. Indeed, as China transitions from being the world champion in intermediate goods production to also becoming a final consumer of the Indo-Pacific’s regionally produced goods, the siren call to divert trade flows within a ‘friendshored’ circle—beyond that related to a narrow sliver of ‘strategic goods’ with security implications—will be shown up to be what it truly is: an exercise in delusions that pays ever fewer dividends going forward. The blunt truth about populism and protectionism today is that it is essentially about protectionism in one major country. The other key actors are all more-or-less committed to the rules-based trading system and conventional forms of liberalization, and the gravitational market pull of the latter far exceeds the pull of the former.
• None of this should breed complacency in Beijing though. ‘Economic coercion’-related policy instruments are being readied on both sides of the Atlantic (the European version is at the penultimate stage). Beijing’s formal and informal bans, boycotts, and trade sanctions against the likes of Australia, Norway, Lithuania, Canada, South Korea, Taiwan, etc. must be eschewed decisively. Like its recent balloon caper, such measures casually and nakedly violate international law. One rogue superpower trader is enough; the multilateral trading system does not need a second such rogue trader. Besides, if Beijing harbors any hope of acceding to the CPTPP and signing the CAI (Comprehensive Agreement on Investment) to anchor its new reform and opening up agenda, elementary sense would dictate that it should not be illegally sanctioning the gatekeepers of those agreements. 

Expanded Reading

• The US Plan to Block China on Chips Will Backfire, Bloomberg, February 1, 2023 [Paywall]
• Postcard from a disintegration: Inside the WTO’s fraying seams, Hinrich Foundation, January 31, 2023
• U.S. Chamber wants more trade deals, but caution on China, U.S. Chamber of Commerce, January 31, 2023
• Factbox: Chinese chipmakers caught in U.S.-China tech spat, Reuters, January 31, 2023 [Paywall]
• Biden Team Weighs Fully Cutting Off Huawei From US Suppliers, Bloomberg, January 30, 2023 [Paywall]
• US appeals against WTO verdicts on steel tariffs on China and other countries, South China Morning Post, January 28, 2023 [Paywall]
• Biden wins deal with Japan and Netherlands on China chip export limit, The Japan Times, January 28, 2023 [Paywall]
• China, U.S. spar at WTO meeting over disputes, Reuters, January 27, 2023 [Paywall]
• China Weighs on U.S. Chipmaking Gear Specialist Lam Research, Caixin, January 27, 2023 [Paywall]
• Trade turns chilly: Chip embargo symbolizes deeper US-China strains, The Christian Science Monitor, January 24, 2023 [Paywall]
• Davos: initial preparations for 13th WTO Ministerial Conference in 2024, Switzerland State Secretariat for Economic Affairs, January 20, 2023
• USCBC Comments Regarding Implementation of Additional Export Controls, US-China Business Council, January 13, 2023