Obama faces looming trade row with China

Xi Jinping (right) listens to Barack Obama (left) during the Nuclear Security Summit at the Walter E. Washington Convention Centre on April 1, 2016.
Xi Jinping (right) listens to Barack Obama (left) during the Nuclear Security Summit at the Walter E. Washington Convention Centre on April 1, 2016.PHOTO: AFP

WASHINGTON (AFP) - US President Barack Obama is facing a fresh trade row with Beijing that could inflame the 2016 election race and complicate his farewell visit to China in September.

Beijing is pressing Obama's administration to treat China like a "market economy," a move that would spell lower tariffs on controversial Chinese exports like steel.

The issue lit up the 2016 campaign trail on Monday (May 2), when Obama's Democratic heir apparent Hillary Clinton appeared to challenge the White House to deny China's demand.

"I have made this clear, I'm going to say it again and I hope the press writes it so people in the administration see it, I am dead set against making China a market economy," Clinton told steel workers in Kentucky.

"They don't follow the rules and they don't play by the rules," she said, echoing longstanding allegations that China hurts US jobs and businesses by dumping goods on the market below cost.

The Chinese government denies such actions and has fought back against waves of US and European retaliatory tariffs.

Now Beijing is opening a new front, challenging the unfavorable and arcane way those tariffs are calculated for non-market economies suspected of dumping goods.

China argues its 2001 deal to join the World Trade Organization dictates that from December 11 the United States must change.

"We anticipate all WTO members to fulfill their treaty obligations on time, not to distort or delay its implementation," Zhu Haiquan, a spokesman for the Chinese Embassy in Washington, told AFP.

Few trade partners would argue China is a fully fledged market economy, but even fewer want to pick a fight with the world's second largest economy.

Smaller nations like New Zealand and Singapore have already granted China market economy status ahead of the December crunch point.

The Obama administration insists its determination will be quasi-judicial, based on established Commerce Department criteria.

"Nothing in China's protocol of accession requires that WTO members automatically grant China market economy status later this year," a Commerce official told AFP on condition of anonymity.

The official said that instead, China would have to "request a review of status" in the context of a specific dispute.

That stance is unlikely to wash with Beijing.

"If that's how it comes out, then I expect China to bring a case to the WTO arguing that it is being denied what it bargained for," said Gary Clyde Hufbauer of the Peterson Institute for International Economics.

"In China, this is a big issue because it has a lot of atmospherics to it."

That risks making Obama's September trip to Hangzhou for a G20 meeting - likely his last trip to China and one of his last meetings with Chinese President Xi Jinping - an uncomfortable one.

And even if Obama avoids a public spat, he faces the prospect of presiding over a China trade dispute during his final months in office.

"They have a pattern of retaliating, so they will figure out some combination of industries where they can shift shipments from US sources to friendly sources," said Hufbauer, predicting Chinese sanctions.

Any retaliatory measures would only be a blemish on trade worth trillions, but they could be a significant irritant nonetheless.

It would be a bitter irony for Obama, again undermining a presidency long effort to improve relations with China and "pivot" US foreign policy away from the Middle East and toward Asia.

And for Obama the issue is made more difficult by a 2016 election that has been a festival of protectionist rhetoric from both the left and the right.

Clinton's opposition to the Trans-Pacific Partnership trade deal has already called into question the future of a landmark Obama achievement, designed to serve a counterbalance to China's regional economic clout.

Meanwhile, candidates like Republican frontrunner Donald Trump routinely point to the roughly US$368 billion (S$498.32 billion) trade deficit with China as evidence the United States is being taken for a ride.

Trump has ditched his party's free trade mantra, provocatively stating "we can't continue to allow China to rape our country."

Figures like Erin Ennis, senior vice president of the US-China Business Council say the US must meet its WTO commitments to China, but common ground on anti-dumping measures can still be found.

But both Trump and Clinton are likely to keep up the pressure for a tough line as they battle for voters across America's hard-hit rust belt in the general election.