Dr. Dan Steinbock is the founder of the Difference Group, an international business, relations and risk and investment consultancy. A senior Fulbright scholar, he has been affiliated as research director of international business at the India, China and America Institute in the U.S., and a visiting fellow of the Shanghai Institutes for International Studies in China and the EU Center in Singapore.

A photo presents the front profile of Dan Steinbock.

Dan Steinbock

Dan Steinbock analyzes the changes China has brought to the world economy since its accession to the World Trade Organization (WTO) in 2001 and the validity of the argument that admitting China into the WTO was a “mistake.” He also explains China’s extraordinary contribution to the world economy and argues for a differentiated perspective that will prevent a repetition of past wrongs, from colonialism to the Cold War and the post-9/11 wars.

CNS: China joined the WTO on December 11, 2001, becoming its 143rd member. Does the WTO need China?

Dan Steinbock: Absolutely, it’s a two-way street, particularly when the new risk of unilateralism hovers over the organization, the threat that casts a dark shadow over its creation.

The WTO, established in 1995, replaced the General Agreement on Tariffs and Trade (GATT) of 1947. The foundational idea originated from the Bretton Woods Conference in the United States in 1944, when a new international trade institution was proposed to augment the International Monetary Fund and the World Bank. The hope was to avoid the isolationism and protectionism that contributed to the Great Depression, which in turn led to World War II.

After World War I, economist John Maynard Keynes warned that the Western allies’ harsh peace terms would result in another world war, which is what happened. After the Bretton Woods Conference, he warned that the unwillingness of the Allies to agree on a truly multilateral trading system would divide the world again after the eclipse of U.S. supremacy, which is also what happened. In the 1970s, U.S. trade deficits (and later, budget deficits) became the new norm.

Today, the WTO continues to reflect mainly prosperous economies’ interests and agendas. That’s why the WTO needs China and other large developing economies to pave the path to a truly multilateral and inclusive organization as envisioned in the 1940s, one that can represent today’s world trade.

CNS: What role has China played in the WTO?

Dan Steinbock: When China joined the WTO, it was written into the agreement that members could treat China as a “non-market economy.” Due to the size of the Chinese economy, government intervention, and state-owned enterprises, the developed economies argued that Chinese domestic price comparisons must be ignored and “constructed values” should be used to get a “true picture” of the Chinese economy.

When the key clause in that agreement expired in December 2016, the U.S., EU and Japan were supposed to grant China market economy status. Stunningly, they refused to do so. The U.S. refusal continues, despite two decades of China’s historical progress. China is still treated as it was two decades ago, as a pretext for heavy anti-dumping duties.

Imagine what would happen if this double standard had been applied to the developed economies when they were industrializing. Tariffs in 19th-century America were among the highest in the world, and infant industry protection the norm. Washington saw U.S.-based manufacturing critical to sovereignty. In France, dirigisme—state control of economic and social matters—goes back to the era of mercantilism and Jean-Baptiste Colbert in the seventeenth century. In Germany, Friedrich List anchored his ideas of national innovation system on American-style infant industry protection and high tariffs. And British free-trade imperialism was preceded by Elizabethan mercantilism.

Unlike the Western powers amid their industrialization, China has made vigorous efforts since 2001 to align itself with WTO rules and open its markets. China’s overall tariff level has been reduced to 7.4%, which is lower than those of the WTO’s developing members and close to those of its developed peers.

China is not the litmus test of the WTO or world trade. Trade unilateralism is.

CNS: Joining the WTO is a milestone in China’s economic opening up and a testament to China’s continued support for the development of the multilateral trading system. How do you see China’s role in the multilateral system in the era of globalization?

Dan Steinbock: Until the late twentieth century, the world economy was fueled mainly by the developed world. In the past two decades, the secular growth potential has shifted increasingly to large developing economies, particularly emerging Asia and China, due to its economic reforms and opening-up policies. And yet, the multilateral trade talks, the Doha Development Agenda launched in 2001, ended in stalemate. The talks have been complicated by persistent differences among the U.S., EU and developing countries. The key issues include agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies.

The timing is telling. The stalemate ensued in parallel with the rise of the large developing economies that increasingly drive the global economy. Meanwhile, the trade stance of the U.S., the architect of the GATT/WTO system, is changing. Unlike the previous U.S. administrations, the Trump trade-war hawks favored bilateral pressure to multilateralism and international rules. The Biden administration’s trade stance is not that different either. Hence, the lingering stagnation of world trade today.

For a decade or two, China and other large emerging economies, particularly export-led trading nations, have asked for a proportionate voice and representation in the WTO. That’s vital to both rich and poor nations. That’s what multilateral global interdependency is all about. And that’s why China’s role in spearheading efforts to reform the WTO in the twenty-first century is vital. As the West flirts with effective de-globalization, China’s role is critical to stress the benefits and value of global interdependency in both developed and developing economies.

CNS: Pascal Lamy, the former Director General of the WTO, once said that the argument by some Westerners that the WTO’s acceptance of China was a “mistake in the first place” is “absolutely wrong.” What do you think of the argument? Twenty years after China’s accession to the WTO, what is China’s contribution to the world economy?

Dan Steinbock: I have to agree with Lamy’s observation. Some Westerners argue that China’s membership in the WTO was a “mistake.” Such views reflect a persistent imperial instinct, a dangerous nostalgia for the colonial era.

When the Cold War ended and China joined the global system, the latter was still dominated by a handful of wealthy economies in the West, the so-called Organization for Economic Co-operation and Development (OECD) Club. As veteran OECD economist Sylvia Ostry used to argue, there is always “system friction” when economies that reflect different political legacies begin to integrate. But such friction is something that one needs to manage, not suppress. There is no single, “right kind” of capitalism that can serve as a model for all countries. Just as there are “varieties of capitalism,” there are varieties of market economies. That diversity, that difference is a richness, not a liability.

What the West should not try to do is to impose straight-jacket models that usually serve external economic interests, and not Chinese interests. The West should acknowledge China’s extraordinary contribution to the world economy, seek to participate in its growth, and cooperate as a responsible partner.

What we all need is a differentiated perspective that allows us to avoid the wrongs of the past—from the brutal legacies of colonialism and the divides of the Cold War to the misguided post-9/11 wars—to stress the importance of peace and stability in order to ensure more inclusive development and a truly multilateral trading future.

That’s how the West should view China’s contribution to the world economy, too.

(Interviewed by Gao Chuyi)