The World Trade Organization (WTO) has said that the tariffs placed by US President Donald Trump on Chinese goods violated international trade rules.
The WTO ruled in favor of China, which filed a complaint over taxes imposed by Trump on approximately $234 billion worth of Chinese goods in 2018. According to the WTO panel, the tariffs violated several rules, including one that countries apply equal tariff rates to all member trading partners.
However, the WTO ruling will have little practical effect since its appeals board has too few members to operate after the US blocked the necessary appointments.
Earlier trade deal
In January, both countries agreed to a phase one trade deal wherein China will buy an additional $200 billion worth of US goods and services over the next two years. In exchange, the US agreed to bring down the tariffs on $120 billion in Chinese products from 15% to 7.5%.
If the deal will be followed, total exports to China would increase to more than $260 billion in 2020 and around $310 billion in 2021. Analysts at UBS pointed out: “We think it is highly challenging for China to import $200 billion more goods and services from the US over the next two years without reducing imports from elsewhere.”
A significant portion of the new purchases will be from agricultural goods. Under the deal, China will purchase an additional $12.5 billion of those goods in 2020 and $19.5 billion the following year, as compared to 2017.
The trade deal also includes increased protection to US companies that have long complained about thefts of their intellectual property and trade secrets, as well as looser requirements for banks planning to operate in China.
US response to WTO decision
The Trump administration has long been a critic of the WTO when it comes to holding China accountable. US Trade Representative Robert Lighthizer denounced the ruling and said it confirmed the ineffectiveness of the trade group.
In a statement, Lighthizer said: “Although the panel did not dispute the extensive evidence submitted by the United States of intellectual property theft by China, its decision shows that the WTO provides no remedy for such misconduct.”
Currently, China also has tariffs imposed on US-made goods but no formal complaint was filed over those.
Using tariffs in negotiations
President Trump has been using tariffs as a negotiation weapon. He has used it against Canada and Mexico during negotiations over the North American Free Trade Agreement (NAFTA).
He had lifted the tariffs last year amid negotiations over the new NAFTA. The deal, known as the US-Mexico-Canada Agreement, went into effect this July.
However, in August, Trump decided to reimpose a 10% tariff on Canadian aluminum, claiming that the imports were a US national security threat.
On Tuesday, hours prior to Canada’s announcement of retaliatory tariffs, the US decided to lift tariffs on Canadian aluminum and instead place a quota and reserve the right to reimpose the tariffs retroactively if the quota level is exceeded.
The move was welcomed by the US Chamber of Commerce since the tariffs made aluminum more expensive for some US manufacturers but the group was concerned over the uncertainty of the terms.
Myron Brilliant, head of international affairs at the US Chamber of Commerce, said: “What American manufacturers need now is certainty that these tariffs won’t make another reappearance.”