First of all, the WTO is a US invent. It was created out of GATT. The idea was to provide a trade tribunal to keep international trade fair. When China entered the WTO, the US thought it had the upper hand. Surprise, it didn’t work to what the US expectations were. Trump, today is threatening that the US might pull out of the WTO.
The issue with Trump’s trade war is he cherry picks data to make his cause or claims look plausible. Some facts before we dig in: The US GDP consists of 80% in the service sector and 20% in manufacturing (industrial). So, our strength is in services, not in manufacturing. Second, the current trade figures show China exports to the US about $500 billion worth of GOODS. The US exports to China about $125 billion with major categories in agricultural and aircraft. US companies that manufacture their parts and products in China also sell to the Chinese domestic markets to the tune of $600 billion. Most of the exports from China are by US companies making parts for their US products to be assembled in the US or products made in China with a US brand for sale in the US or China by an American company. (A product can be considered ‘Made in USA’ if at least 50% of the product is made in the US). Chinese exports average 45% China value added, that is, 55% of its composition come from another country. For example, the famous iPhone example shows the Chinese content is less than $20 for a $1000 iPhone. Clothing show almost 100% Chinese content because the materials are all sourced from China and the garment is made in China. The US has a world trade surplus of $270 billion of which $37 billion is with China.
If you did the math, you would find the trade deficit much less than advertised. However that is not the reason for the trade war, though Trump says so. The trade war is all about China’s switch to a technology and domestic consumption driven economy. The biggest issue is with a Chinese initiative called ‘Made In China 2025’ which gives a plan to be technology independent. The US fears this plan because it puts China on a collision course with the US in technology where the US is king of the mountain today. During the trade negotiations, though China offered some increased trade purchases, the negotiations came to a screeching halt when the US demanded China cease its technology plan. China refused and the US delegation broke off negotiations.
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