Chinese Mercantilism: Unfair Trade Practices and Western Pushback
Introduction:
China’s economy relies on three key pillars: the domestic real estate market, foreign direct investment, and exports. However, recent developments have disrupted these pillars, leading to a pushback from Western countries. While foreign direct investments in China have dried up due to Beijing’s strict COVID-19 measures and the implementation of a new counterespionage law, there is also growing awareness of China’s use of mercantilist practices to gain unfair trade advantages. This article examines Chinese mercantilism, its historical roots, and recent Western efforts to counter it.
What is Mercantilism?
Mercantilism was an economic system that aimed to accumulate wealth and power by regulating trade to maximize exports and minimize imports. A trade surplus, where a country sold more domestically produced goods to other nations than it purchased, was seen as a measure of success. To achieve this, countries implemented measures such as tariffs, manipulation of regulations and tax laws, exploitation of cheap labor, and government subsidies to undercut foreign competition.
Mercantilism with Chinese Characteristics:
When China joined the World Trade Organization (WTO) in 2001, there was hope that it would abandon its mercantilist practices. However, China has continued these practices through government subsidies, targeted lending, tax breaks, and restrictions on independent labor unions. The Chinese Communist Party (CCP) has adopted and adapted Western mercantilist practices since China’s opening to the world in 1972.
Examples of Chinese Mercantilism:
China uses economics as a weapon through discriminatory sanctions and embargoes against countries and companies that oppose its core interests. The CCP engages in economic espionage, targeting industrial sectors to steal technological know-how and trade secrets. Joint ventures in China require foreign companies to pair with Chinese partners, enabling the direct theft of foreign intellectual property. China also strategically stockpiles commodities and engages in overcapacity and dumping, using heavily subsidized industrial sectors to export products below the cost of production.
Western Pushback:
The United States, under the Trump administration, pursued tariffs and decoupling measures to rebalance U.S.-China trade and combat Chinese mercantilism. The Biden administration has maintained many of these tariffs and added new ones on specific products. The Group of Seven nations, along with Australia, are adopting a strategy of collective resilience, practicing economic deterrence by collectively withholding key goods on which China is highly dependent. This approach aims to pressure China to reduce sanctions and embargoes and fulfill its claims of opening up.
Other responses include European Union investigations into Chinese subsidies, alarms raised in Western media about Chinese dumping, withdrawal of a Chinese train-maker’s bid in Bulgaria due to government subsidies, and U.S. investigations into China’s non-market policies in the maritime and shipbuilding sectors. These efforts demonstrate a growing consensus on countering Chinese mercantilism, but a more collective response is needed.
Conclusion:
China’s mercantilist practices have raised concerns among Western countries, leading to various countermeasures. The understanding of mercantilism’s historical roots helps shed light on China’s adoption and adaptation of these practices. As the world becomes more aware of China’s unfair trade advantages, efforts to address Chinese mercantilism are gaining momentum. A collective response from Western nations is crucial to effectively counter these practices and encourage China to open up its economy.
