The Heritage Foundation - Leadership for America

The front page of the business section of the New York Times today notes recent Chinese state intervention in trade.  The Times is right to make this observation, if six… or eight… months late. But recent Chinese moves are neither new nor particularly important.

The intervention in trade is long-standing; recent steps are minor extensions of previous policy. The announcement that government departments must buy local goods and services whenever available is just a restatement, the third or fourth one, of existing practices. Unfortunately, it also follows on our own “Buy America” provisions — making official protest awkward (to say the least).

This round of tax rebates for Chinese exports was initiated last August and, as a policy tool, date back to the 1990’s crisis. Controls on raw materials exports are also long-term. It’s only now that the U.S. and E.U. have decided to complain. The most important Chinese intervention into trade continues to be a financial system that offers essentially free loans to state firms, exporters and those that compete with imports. It’s done by blocking bank competition and preventing domestic capital from leaving the country.

To the degree possible, American negotiators should focus on this. China’s latest small steps backward do have some significance. They certainly are hypocritical in light of Chinese Minister of Commerce Chen Deming’s claim to support free trade. They might signal China’s economy is under greater strain than Beijing is willing to acknowledge. Finally, they may also be bargaining chips.

The first meeting of the newly-christened Strategic and Economic Dialog is coming in late July. China now conveniently has some ugly new regulations it can reverse, to loud applause, while not changing its true, interventionist trade stance at all.