Today, the United States Studies Centre (USSC) releases its latest report, From ‘China shock’ to deglobalisation shock: China’s WTO accession and US economic engagement 20 years on.

In this report, USSC International Economy Program Director Dr Stephen Kirchner unpicks the popular ‘China shock’ literature which says the pursuit of permanent and normal trade relations with China 20 years ago was a strategic error on the part of the United States and the report finds that, instead, it was the failings of US institutions and policy settings that exacerbated the negative impacts.

“’China shock’ delivered net benefits to the US economy” Dr Kirchner says, “while growing US economic disengagement with the rest of the world over the past 20 years poses the bigger threat to the dynamism of the US economy.”

Dr Kirchner argues that deglobalisation, not ‘China shock’, gave rise to poorer economic outcomes in the United States and Trump’s tariffs worsened China’s trade protectionism and political repression. The tariffs and China’s embrace of economic self-reliance are mutually reinforcing.

Kirchner notes, “President Trump’s trade policies, maintained by the Biden administration, encouraged China to double-down on its state-led development model and strategic industry and trade policy, while potential multilateral solutions and processes have been neglected and under-utilised.”

The United States and other countries complain World Trade Organization (WTO) rules are inadequate and the report emphasises the uncertain future of the WTO. Kirchner explains, “Thus far, the WTO has proved unable to hold China’s feet to the fire in a meaningful way when it fails to uphold its accession commitments.” Kirchner concludes, “The United States needs to lean-in to multilateral trade leadership rather than withdraw.”

Ultimately, the report finds this would not only further US domestic economic policy and foreign policy interests but would also set a foundation for addressing future trade frictions arising from multilateral climate agreements and the growth of the digital economy.

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Key points

  • China’s accession to the World Trade Organization (WTO) in 2001 was an important element of its growing integration into the world economy, as well as its domestic economic reform program dating back to 1978. A broad assessment of the economic impact of China’s accession suggests the decision was a net positive for the US economy. This puts in perspective the narrower ‘China shock’ literature which emphasises the association of increased import competition with China and loss of US manufacturing jobs in previous decades.
  • US policymakers are increasingly critical of the World Trade Organization and its failure to discipline China’s trade and industrial policies but Australian policymakers see G7-led WTO reform as a key element to push back against China’s coercive economic diplomacy. Far from calling out and disciplining China’s behaviour, President Trump’s protectionist trade policies, maintained by the Biden administration, have encouraged China to double-down on its state-led development model and strategic industry and trade policy.
  • Effective US leadership of the multilateral trading system would not only promote US foreign policy objectives such as prosecuting its strategic competition with China but would also discipline US domestic economic policy in ways that better serve its economic interests. It also provides a rules-based framework to manage trade frictions arising from climate mitigation under the Paris Agreement and growth in the digital economy.

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