It’s incredibly hypocritical, and almost certainly won’t be resolved. So what’s the Chinese government’s goal?
Lost in the daily shuffle of news this week was an announcement from China at the World Trade Organization: It has initiated dispute settlement proceedings against the United States because of “discriminatory subsidies” in the Inflation Reduction Act. In effect, China is suing the U.S. in international trade court over one of its signature industrial policies.
Signed into law in August 2022, the Inflation Reduction Act (IRA) incentivizes the domestic manufacture of clean energy products like solar panels, electric vehicles and the batteries that power them, and provides consumer tax credits for purchasing all these things. That’s not an exhaustive list of what the IRA does, of course. Suffice to say, it’s the most significant American clean energy policy ever. It will help the country decarbonize, and is ensuring the products needed to do it are made here. The IRA is a huge deal for the environment, national industrial resiliency, and for workers in the United States.
China doesn’t like it, though, specifically the rules around the EV tax credits that exclude vehicles and parts made in China. Reports Reuters:
China said it was contesting “discriminatory subsidies” under the (IRA) that it said resulted in the exclusion of goods from China and other WTO countries.
“Under the disguise of responding to climate change, reducing carbon emission and protecting environment, (these subsidies) are in fact contingent upon the purchase and use of goods from the United States, or imported from certain particular regions,” the Chinese mission said.
This is an interesting tack — a bold strategy, perhaps — by the Chinese government for a couple of reasons.
First, this complaint is a bit rich coming from China, which has built its world-leading EV industry behind a wall of preferential treatment and subsidies for Chinese manufacturers. Complaining to the World Trade Organization about the U.S. earnestly doing the same qualifies for any number of proverbs or idioms. People who live in glasses shouldn’t throw stones! Pot, meet kettle!
And secondly, it’s unclear what the point of this is. It is the beginning of a vortex of litigation between the two countries at the WTO, yes. But it isn’t going to be resolved. The WTO’s dispute settlement system is essentially non-functioning, as the U.S. has blocked the appointment of new judges to its appellate court since 2019 after decades of overreach that interfered with legitimate U.S. trade enforcement measures. So even if the WTO were to side with China in this complaint, Washington isn’t about to submit to its ruling.
So again, what’s the point? The Chinese government is unconcerned with the glaring hypocrisy and is just really a stickler for WTO rules? Or perhaps it’s rather just legal warfare; dispassionate, all-fronts pressure in support of its national interests, which in this instance are its decades-long EV industrial project and its plan to export its way out of domestic economic doldrums. My guess is it’s the latter.
“For this to work, China must expand its share of global manufacturing. That needs to be accommodated by the rest of the world,” Michael Pettis, a finance professor at Peking University and senior fellow at think-tank Carnegie China, told the Financial Times this week. “The rest of the world is unlikely to do that.”