Band-aid solutions

China’s institutionalized trade circumvention apparatus presents an enormous challenge for modern trade policy. Beijing’s distortive trade practices are widely acknowledged. However, whether they are tariffs or quotas, existing remedies are ill-equipped to address the problem. Focusing narrowly on goods received directly from China, these trade policies are designed for a world of bilateral trade flows—not convoluted, multi-country, multi-stakeholder value chains both difficult to trace and easy to obscure. The results are myriad. First, the international system remains stymied in its efforts to prevent market distortions. Second, emerging economies, granted beneficial trade status to further develop and catch up with other markets, find those advantages co-opted by the industrial policies of a major power.

The carve-out in the recent EU-US trade deal constitutes a major and laudable recognition of this problem. But its solution is little more than a Band-aid. The injury requires a more thorough response. The global trade system needs a new and updated set of tools.

Those tools start from and require coordination with allies and partners. The United States, Europe, developed Asian economies, and other trading partners should work to strengthen WTO enforcement mechanisms. A worthwhile starting point would be to update the definition of a “public body” in the WTO’s Agreement on Subsidies and Countervailing Measures to accurately reflect the scope and reach of contemporary Chinese industrial policy.

The United States should also lead efforts with allies and partners to invest in a new generation of customs protocols and accompanying information technology platforms. Monitoring for illegal circumvention activities requires modern, verifiable, and independent trade processing authorities and technologies. These initiatives can be developed at trading hubs, such as major international ports. And these initiatives can be part of the global community’s emerging focus on new infrastructure investments.

At a more strategic level, US policy should be realistic about two critical issues: the mismatch between the slow pace of multilateral reforms and the urgent need to protect critical, strategic sectors, and the near-term futility of tactical fixes for strategic problems.

Where possible, the United States should incorporate remedy circumvention frameworks into bilateral agreements. In addition, the US should diligently pursue enforcement of trade agreements with China. The direct effect of doing so constitutes only one benefit. The other goal is equally important. Such action would signal to allies and partners that the United States is dedicated to defending the global trade architecture against the bevy of distortive practices that make up China’s industrial policy.