Germany and the UK are under pressure from the US government, which wants to block China from being granted market economy status (MES) under the World Trade Organisation rules. China wants that status, to secure unimpeded trading opportunities with the other members.
Germany’s Angela Merkel favours MES status for China, as does the Cameron government in Britain. But they are walking into a trap, according to the US, which claims that China would increase the dumping of cheap goods in Europe.
There is no doubt that the Chinese government does use state power to favour industries in ways that reduce their costs so that they can under-cut competitors in world markets. But does the US government have clean hands?
Let’s look at the claim that the Chinese government is employing unfair tactics. This accusation rests on the claim that western governments do not interfere with in the economies, at least on the issue of prices.
State interference: Western governments actively interfere in private markets by manipulating the price of goods. They do so via fiscal policy. They arbitrarily choose whether to penalise labour or capital inputs to privilege the income that is derived from land.
Consumers are disadvantaged: Western governments impose such disadvantages, especially on low income families who can least afford the higher prices of products that result from sales taxes and VAT. Ironically, the regressive impact of tax policy is partly offset by the lower prices of goods exported by China.
Jobs are lost: many people have lost employment because their goods and services cannot compete with Chinese imports. But Western governments have spent the last two centuries curbing the employment prospects of their own people through devices such as the Income Tax. Low productivity people are especially disadvantaged by being denied access to marginal forms of employment.
An objective assessment of the role of governments in the economy would show that the US was as guilty as China in subverting entrepreneurial activity. How many more firms would exist today in North America and Europe if governments had not employed imposed corporation taxes and other devices that militate against freedom to make and trade?
This raises and interesting issue that the Chinese government might wish to reflect upon. Should Beijing lodge a complaint with the WTO, alleging that the US government is systematically prejudicing free trade both at home and abroad?