A federal court this week barred the simultaneous application of anti-dumping and countervailing duties to imports from China, a practice begun by the Department of Commerce in 2007. Commerce has rightly classified China a “non-market economy” for purposes of applying anti-dumping duties against goods sold in the U.S. at below-market prices. At the same time, however, it has lifted that classification for purposes of applying countervailing duties against Chinese subsidies in the same sector. In a politically sensitive decision, the court ruled these two different kinds of duties could not be simultaneously imposed.
There are many dimensions to the decision, especially heading into 2012. One fact looms large: the People’s Republic of China (PRC) is not a market economy. China is not now a market economy, and it is not becoming a market economy. Any policy that does not recognize this is based on a fundamental mistake.
The PRC subsidizes its state-owned enterprises at every turn. They are protected from competition and given huge amounts of no-cost “loans,” free land, cut-rate energy, and so on.
These practices are the biggest barrier to American exports to the PRC. They distort the world economy and harm the environment. They require a well-founded, consistent response. At the moment, the U.S. government does even not measure Chinese subsidies properly or comprehensively. That must be the first step in determining the best response.
This court decision is just one element of a more important matter. The main issue is not what kind of countervailing duties should be applied to Chinese goods, but whether we take Chinese subsidies seriously as a matter of policy. The broad subsidies problem will require a good deal of work, difficult negotiations, and possibly some painful choices. But it is this route—not the politically convenient appeal to protectionism—that will address real imbalances in Sino–American economic relations. This is a difficult case to make during an election year, but it is one that must be made.