Chad P. Bown, a Reginald Jones Senior Fellow at the Peterson Institute for International Economics (PIIE), has published a research paper arguing that China's shift towards increased state intervention in its economy presents significant challenges for global trade. The paper highlights concerns over industrial policies in shipbuilding and electric vehicle batteries, questioning the effectiveness of the World Trade Organization's (WTO) dispute resolution mechanism and underscoring the need for research to guide rule adaptation and cooperation. The paper was released by PIIE in December 2023.
According to PIIE's website, Bown's expertise lies in international trade laws and institutions, trade negotiations, and trade disputes. He has previously served as the senior economist for international trade and investment on the White House's Council of Economic Advisers and as a lead economist at the World Bank. He is currently a member of the Council on Foreign Relations.
In his research paper, Bown delves into global industrial growth patterns and discusses how the WTO will need to adapt to accommodate China's evolving industrial policies. "Over the last decade, China's economic landscape has seen an expansion of state involvement, especially under President Xi Jinping," said Bown. "China’s economy is now so large and intertwined with others through buying and selling (imports and exports) and supply chains that even its domestic policies can impose considerable externalities on trading partners."
Bown cites shipbuilding and electric vehicles (EV) as examples of sectors affected by China's industrial policies. In less than ten years (from 2000 to 2009), China emerged as the largest shipbuilder, commanding approximately 50% of global share. Studies on EV battery subsidies reveal a nearly 90% reduction in battery prices between 2010 and 2020, influenced by both global consumer subsidies and China's local content policy favoring select Chinese firms.
Bown underscored that it is imperative for the WTO to address the issues stemming from China's industrial policies. Beyond examining potential violations and seeking dispute resolution, he suggested that WTO rules need to be adapted to accommodate elements of China's development strategy. Bown also expressed concerns that China's industrial policy may have violated the WTO "market access rights" of Japan and South Korea in the shipbuilding and EV battery industries, citing evidence of business theft. However, neither country has raised these issues with the WTO, which Bown said could be due to a lack of economic evidence or fear of economic coercion by China.
On the topic of the WTO's involvement, Bown argued that tariffs are not always the most effective solution. He noted that the US-China tariff escalation and the "Phase One" agreement have resulted in both sides imposing tariffs inconsistent with the WTO's principle of nondiscrimination. Proposals range from adding specificity to WTO disciplines to engaging with China over its market access commitments, emphasizing reciprocity and preventing externalities. "Under the terms-of-trade framework for the WTO, what matters for any country, including China, is reciprocity for changes to its imports and exports and the securitization of market access, to prevent externalities from being imposed on trading partners," said Bown. He added that focusing on multilateral trade outcomes rather than policy behavior might help restore cooperation in the international trade system.
