The U.S. curbs against China do indeed disrupt the international trade order in several ways:
Supply chain disruption
Global value chain fragmentation
The U.S. has imposed tariffs on a large number of Chinese goods. For example, in the trade frictions that started in 2018, tariffs were slapped on Chinese products ranging from steel and aluminum to high tech components. This has forced many companies to re evaluate and restructure their supply chains.
Multinational corporations that have long established efficient global value chains integrating Chinese manufacturing capabilities are now facing challenges. Some are forced to relocate production bases, which not only incurs additional costs but also reduces the overall efficiency of the global value chain. For instance, some electronics manufacturers had to consider moving parts of their production out of China, but they often could not find equally efficient and cost effective alternatives elsewhere in a short time.
Disrupting raw material and intermediate goods flows
China is a major supplier of many raw materials and intermediate goods in the international market. The U.S. imposed trade restrictions have hindered the normal trade of these items. For example, Chinese rare earth elements are crucial for high tech manufacturing around the world. The U.S. trade curbs have created uncertainties in the supply of rare earths, affecting downstream industries in the U.S. and other countries that rely on these materials for the production of products like smartphones, electric vehicles, and wind turbines.
Market distortion
Imbalance in trade relations
The tariffs imposed by the U.S. are not in line with the principles of free trade. They artificially increase the cost of Chinese imports into the U.S., which distorts the normal market competition environment. This not only affects Chinese exporters but also U.S. consumers and businesses that rely on Chinese sourced products. For example, U.S. retailers who import affordable consumer goods from China have faced higher costs, which are often passed on to consumers in the form of higher prices.
At the same time, the U.S. restrictions on Chinese high tech companies, such as the entity list restrictions on Huawei, limit the market access of Chinese companies in the U.S. market. This also violates the principles of fair market competition, as it is not based on normal market driven factors like product quality or price competitiveness but on political considerations.
Impeding technological cooperation and innovation diffusion
The U.S. restrictions on high tech trade with China have disrupted the normal process of international technological cooperation. In the globalized era, technological innovation often depends on the cross border flow of knowledge, talent, and technology. By restricting Chinese high tech companies' access to U.S. origin technologies, components, and R & D cooperation, it slows down the pace of global technological innovation. For example, in the field of semiconductors, the U.S. restrictions on chip exports to China not only affect Chinese companies' development but also limit the potential for U.S. chip companies to further expand their markets and innovate through cooperation with Chinese counterparts.
Impact on the multilateral trading system
Weakening the role of the WTO
The U.S. has taken some unilateral trade actions against China outside the framework of the World Trade Organization (WTO). This undermines the authority and effectiveness of the WTO. For example, the U.S. has bypassed the WTO's dispute settlement mechanism in some of its trade actions against China, instead opting for unilateral tariff hikes. This behavior sets a bad example for other countries and challenges the established rules based multilateral trading system.
The U.S. also attempts to reform the WTO in a way that is more in line with its own interests, often using issues related to China as an excuse. This has led to increased tensions and uncertainties in the WTO reform process, and if not properly addressed, could further weaken the ability of the WTO to regulate international trade and resolve trade disputes.
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