On Global Trade & Investment
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The Global Business Dialogue, Inc.
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No. 17 of 2017

Click here for Monday's quote on the Pacific Alliance meeting in Chile.


"I don't believe that the WTO was set up to deal effectively with a country like China and their industrial policy."

March 14, 2017
Yesterday was a big day for American trade policy. With the Trump Administration about to complete its second full month in office, the Senate Finance Committee held a much anticipated hearing on the nomination of Robert Lighthizer to be the next U.S. Trade Representative. On January 2, 2017, then President-elect Trump announced his intention to nominate Mr. Lighthizer, a former Deputy USTR and a partner with Skadden, Arps, Slate, Meagher, and Flom, to become the next USTR. On the afternoon of January 20, President Trump sent a list of 27 nominees to the Senate--Robert Lighthizer among them--asking for their confirmation.

When will Mr. Lighthizer will get a vote? We don't know, and in any case, that is a question for later. Confirmation hearings, like the one with Robert Lighthizer yesterday, are treasure troves of information about the concerns of the participating Senators and about the attitudes of the nominee. They also provide glimpses of key personalities and their interactions. We expect to revisit that hearing more than once in the next couple of weeks.

China was mentioned quite a lot yesterday, with issues like "currency manipulation" and the "overcapacity" in steel and aluminum coming up again and again. Today's featured quote was, narrowly, a response by the nominee to a question from Senator Tim Scott (R SC), who, like Senator Grassley (R IA), had asked about China's tremendous overcapacity in steel and other products. Then there was this:

SENATOR SCOTT: If you look at the tools at your disposal, if you found the WTO to be ineffective, are there other tools that you need, that you would recommend if you are confirmed as our trade Rep?

MR. LIGHTHIZER: I have some ideas but they're probably ideas that I'm better off [discussing later]. I don't believe that the WTO is set up to effectively deal with a country like China and their industrial policy. I just feel it was never really intended to deal with those kinds of situations. So, we have to use the tools we have and then I think we have to sit down with members and find a responsible way to deal with the problem by creating some new tools.

This is the comment section, and we do have a couple of comments. Still, we need to say a bit more about how Mr. Lighthizer would approach the challenges posed by what he called China's "non-economic" overcapacity. Confronting the Chinese on the issue in the Global Forum on Steel Overcapacity is one action that can and should be taken, Mr. Lighthizer said. It seemed to us that he put even greater weight on the need for finding ways to make China's production even less economic. Of course, that means using the trade remedies of U.S. law to limit imports of dumped or subsidized products from China. But it also means encouraging America's trading partners to do the same. The logic of such an approach seems to us unassailable, but it may be tough to put it into practice.

We chose today's quote because in it Mr. Lighthizer put his finger on something he sees as a WTO limitation. The organization is not set up to deal with the kinds of industrial-policy challenges that China poses for the United States and others. That said, we did not hear in Mr. Lighthizer's testimony any threat to the WTO from the Trump Administration. There were plenty of references to using the organization, but yes, he was saying, it has its limits.

Insofar as we are dealing with both China and the WTO, there is some merit in looking back to Mr. Lighthizer's 2010 testimony before the U.S.-China Economic and Review Commission on the consequences of China's entry into the WTO.

In his written statement, he highlighted the disparity between what was expected from China becoming a part of the World Trade Organization and the results. It was a harsh judgment:

In fact, between 2001 and 2009, the United States shuttered 42,400 factories, including 36 percent of factories that employ more than 1,000 workers, and 38 percent of factories that employ between 500 and 999 workers.

It seems clear that the U.S. manufacturing crisis is related to our trade with China.

Robert Lighthizer
June 9, 2010


Does this mean China should never have been allowed to become a member of the WTO? Our own view was that membership was close to inevitable then, and now, of course, it is an accomplished fact. We doubt America would have gained much by barring the door to China's entry, especially in view of the circumstances of November 2001 -- two months after 9-11.

At this point, it may also be worth recalling that in the age of the GATT, that is, before the WTO Dispute Settlement System, some of America's big trade challenges -- steel, autos -- were dealt with largely outside the Geneva system. Whether the past can be prologue, however, is an open question.

All that said, it is time to cast a cold eye on what these changes have meant for America, for China, and for the WTO.
The Hearing is the C-Span video of Mr. Lighthizer's confirmation hearing yesterday, March 14, before the Senate Finance Committee. The same material and more is available on the Committee website. Senator Scott's question occurs at roughly the 1 hour-30-minute mark.

On China and the WTO is a link to Mr. Lighthizer's 2010 testimony before the U.S.-China Economic and Security Review Commission. We are indebted to the friend and colleague who pointed us in the direction of this rich document.


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R. K. Morris, Editor