China has responded to accusations from the US, labelling them as “unfounded and false allegations” regarding its involvement in the fentanyl trade, suggesting that these claims are being used to rationalise tariffs on Chinese goods.
Just one day after US President Donald Trump announced a 10% increase in border taxes on Chinese goods, a formal complaint was submitted to the World Trade Organisation (WTO). The President indicated that this measure was aimed at tackling the rising issue of illegal drug imports.
In its filing, China characterised the measures as “discriminatory and protectionist,” asserting that they contravene established trade regulations.
Experts caution that China is unlikely to achieve a favourable ruling as the panel responsible for resolving trade disputes continues to face operational challenges. A former World Trade Organisation official told the BBC there is “no possibility of succeeding.”
The ongoing dispute arises amid Trump’s proposed tariffs, a tax he aims to implement on all foreign shipments entering the country. This tax is generating uncertainty throughout the global trade environment.
Former President Trump has asserted that tariffs will incentivise companies to produce their goods domestically, consistently voicing apprehension regarding the magnitude of the United States trade deficit.
His actions against China, which he has threatened to expand to include Canada, Mexico, and Europe, have raised alarms regarding their potential effects on the global economy. This uncertainty is prompting businesses to delay investments or transfer new costs to consumers, particularly within the United States.
On Wednesday, Sheertex, a Canadian tights manufacturer, announced that it is temporarily laying off 40% of its workforce, which consists of nearly 350 employees, due to uncertainties surrounding tariffs.
In December, US imports reached a record high as businesses reacted to looming tariff threats, hastily securing foreign-made toys, mobile phones, and computers.
On Wednesday, the Commerce Department reported a significant increase in the value of goods imported into the United States, which rose by 4% from November, reaching a total of $293.1 billion (£234.4 billion). This marks the highest level recorded since data collection began in 1992.
The increase also led to the most significant trade deficit, or gap, between exports and imports in almost two years.
The implementation of tariffs has sparked significant political tension, leading to retaliatory actions from China. In response to Trump’s decision, China has imposed tariffs on American goods and initiated an anti-monopoly investigation into Google, among other countermeasures.
China’s swift action in filing its complaint with the WTO signals Beijing’s preparedness for the impending trade battle.
On Wednesday, Bloomberg reported that the nation’s anti-monopoly regulator is gearing up for a potential investigation into Apple’s policies and App Store fees, impacting the company’s stock prices.
Trump’s recent actions, including the directive to terminate duty-free treatment for parcels valued under $800, are poised to deliver a significant “shock” to various companies, notably Shein and Temu. According to Mark Williams, chief China economist at Capital Economics, this shift threatens to undermine their capacity to maintain ultra-low pricing strategies.
He expressed the belief that Trump’s tariffs on China would not be excessively harmful overall.
“He stated that this situation is certainly manageable for the broader Chinese economy.”
The World Trade Organization’s procedures stipulate that the United States and China have a 60-day window to settle their dispute via consultations. Should these discussions fail, China is entitled to seek adjudication from a panel of judges.
The final WTO panel responsible for resolving trade disputes, known as the appellate body, continues to face operational challenges due to the United States’ refusal to endorse the appointment of new judges to the panel.
The United States has overlooked a prior determination by the World Trade Organisation, which stated that the tariffs on steel and aluminium enacted during Donald Trump’s initial term were in violation of established regulations.
Tom Graham, who chaired the WTO’s appellate body in 2016 and 2019, informed the BBC that it is likely to take “probably a year” before a decision emerges from the initial phase of Beijing’s complaint, noting that the chances of it advancing further are minimal.
“While the case may appear robust based on the previous functioning of the WTO dispute settlement system, he asserted that it ultimately lacks the potential for success in this context,” he stated.
Jeff Moon, a former advisor on China’s trade policy during the Obama administration, told the BBC he anticipated that the WTO’s initial ruling would favour China’s stance.
The resolution of these cases often spans several years, and with the appeals process currently stalled, experts warn that “a final decision will never be issued.”
The former Assistant US Trade Representative for China Affairs emphasised that Beijing must file the case to bolster its often-repeated assertion that the United States is undermining the rules-based trading system and the bilateral relationship.
In December, China emerged as the country with the most significant goods deficit, exporting $25.3 billion more to the United States than it imported.
The European Union, facing tariff threats from Trump, recorded the second-largest gap.
In contrast, the United States recorded a modest surplus of $2.3 billion in goods trade with the United Kingdom.
The trade deficit in the United States, encompassing services, increased significantly by 17% last year, reaching a total of $918.4 billion. This increase was driven by imports outpacing exports in growth.
The Commerce Department reported that the trade deficit in goods and services reached $98.4 billion in December, marking the highest level since March 2022.
