Europe and the US-China Trade War

Bernard HoekmanEuropean University Institute and CEPR

Europe and Japan Under the Shadow of Sino-American Hegemonic Rivalries, EUI, 11 February 2020

This presentation draws on work in progress supported by an EU Horizon 2020 research and innovation grant no. 770680.

Tit-for-tat dynamics of US-China tariffs

2/12/20Source: Chad Bown, PIIE 2

Use of potentially trade-distorting policies (number, 2009-18)

12/02/20 4

0 200 400 600 800 1000 1200 1400 1600 1800United States

GermanyIndia

RussiaBrazil

ArgentinaJapan

United KingdomChina

ItalyIndonesia

FranceAustralia

Saudi ArabiaTurkey

South AfricaCanada

South KoreaMexico

Lot of heterogeneity, in part reflectinguse of different instruments

Many policies not traditional trade policy: e.g.export financing-related

Limited transparency—and analysis of effects

Share of trade affected by post 2008 trade-related measures

Source: Global Trade Alert; Evenett chapter in Hoekman & Zedillo eds., Brookings, forthcoming 5

Antidumping – EMs and US are leading users; EU use down substantially(new measures imposed, 1998-2018)

04.10.2018 |Source: WTO 6

0

20

40

60

80

100

120

140

160

180

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Top antidumping users

EU US China Brazil Argentina India

US is the dominant user of countervailing duties—EU largely MIA(main users of CVDs, 1995-2018)

04.10.2018 |Sustaining Global Trade Governance 7

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Countervailing duty measures

Australia Canada European Union United States

Global safeguard measures, 2009-18 (total for EU = 0)

04.10.2018 |Source: WTO 8

0

10

20

30

40

50

60

70

80

90

India Indonesia Turkey Ukraine Viet Nam Total all countries

Main users of global safeguards, 2009-18

EU: A long history of a multi-track strategy anchored on market access§ Limited hard power – essentially access to the single market- Non-reciprocal preferences - Reciprocal trade/partnership agreements- Multilateral cooperation in WTO

§ Soft power: Norms and standards- Linkage to access to the single market- Good regulatory practice (independent of direct access benefits)

§ Development assistance and FDI- Mix of EU values and self-interest (migration…)- Relative importance increasing as EU becomes more open / markets are less distorted (CAP

reform, etc.)§ Bilateral dialogue with both countries- Extensive for China (60+); regular engagement with US govt/regulatory bodies

| 9

Response to US aggressive unilateralism and China state capitalism

§ Bilateral dialogue

§ Retaliation against US invocation of “national security”-motivated protectionism (steel…)

§ Dispute settlement cases in WTO

§ Trilateral discussions on industrial subsidies and SOEs

- Complemented by bilateral discussions between the 3 dyads: US, EU, Japan

§ Bilateral negotiations

- From TTIP to sectoral damage limitation trade deals with US

- Comprehensive agreement on investment with China – but not trade

§ Multilateral dialogue

- E-commerce and domestic regulation of services, but not on subsidies

- EU leadership to put in place an ad hoc appeals mechanism

- WTO reform discussions| 10

Different approaches to cooperation

Import liberalization

Exporter regulatory commitments(govt. or pvt.) in return for

Import policy

Reciprocal Liberalization

Import policy

Regulation Regulation

Regulatory cooperation

Harmonization, MRAs, equivalence

Country 1 Country 2

Source: Mattoo (World Bank working paper, 2018)

Open plurilateral agreements (OPAs) as part of a solution

§ A response to consensus constraint in WTO but also to differences in preferences, priorities and capacities (Hoekman and Sabel, Global Policy, 2019)

§ Nondiscriminatory in the sense of open to any country, ex ante and ex post§ More feasible for policy areas that are regulatory in nature and apply equally to

national and foreign firms or products- But also can span market access-related issues where the “critical mass” needed

to permit cooperation is relatively small§ Critical to move forward on a Green Deal- Example: New Zealand led initiative on a trade-climate OPA

§ EU-Japan leadership opportunities

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Example: Subsidies

§ In contrast to other policy areas, no epistemic community exists§ Many professionals (primarily lawyers and economists) work on subsidy related matters

in:- Ministries of Finance; national competition agencies and DG Competition - International organizations: e.g., IMF, OECD

§ A plurilateral initiative to bring together stakeholders§ Role for G20 Trade and Investment Working Group?§ Start with laying potential foundation for cooperation through compilation and analysis of

data on subsidies- Necessary to build trust- Indicators to help legitimate the overall program (viz. Producer Support Estimates for

agriculture)

Diagnostics: (when) are subsidies a problem?

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§ Understanding policy objectives and assessing whether interventions are effective and at what spillover cost is important

- Subsidies may be beneficial: negative effects on competitors may be offset by positive welfare effects

§ Take into account market structure and barriers to entry: what matters for welfare is whether markets are contestable

- Apply basic insights from economics of predation and competition policy

§ Lessons from EU – approach subsidy disciplines via competition policy - Focus on state resources (subsidies or tax expenditures) that lead to a selective

advantage for an undertaking (firm) or activity that distorts competition and affects trade

- Use of block exemption for measures deemed to raise few concerns in distorting competition – such as those that target environmental goals

- Ownership or control not the issue; potential anti-competitive effects of grants are