America and China are sparring over subsidies

AS TRADE TALKS continue between America and China, old fights are rumbling on. On October 28th China asked the World Trade Organisation (WTO) to allow it to retaliate against $2.4bn of imports from America, as part of a long-running dispute over American treatment of Chinese exports. The final sum will be set by an arbitrator, and will be small in the broader context of the two countries’ escalating trade war. But the symbolism will make it sting.

The dispute concerns two of America’s biggest gripes: China’s economic model and the WTO’s inability to constrain it. America accuses China’s government of bloating its private sector with subsidies, which spill over to affect businesses abroad. If state-owned banks make cut-price loans, or state-owned electricity companies sell cheap energy, Chinese exporters have an unfair advantage, it says. By last year America had imposed tariffs on almost 7% of Chinese imports, citing such subsidies and the need to defend itself.

Americans argue that if Chinese state institutions hold a majority stake in a company, this strongly suggests it is a “public body” and therefore capable of giving subsidies. But the WTO’s appellate body has generally disagreed. It has also often backed China’s stance that America’s defensive duties are too harsh.

The United States Trade Representative,...



via The Economist: Finance and economics Business Feeds

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