Hong Kong As Schrodinger’s Cat

Some of our pressing current challenges seem self-inflicted. The UK decision to leave the EU was not compelled by external circumstances. A non-binding referendum that won by 52% to 48% was taken to be a binding decision to break a 45-year old treaty.  

From before the end of WWII through 2016, the US sought to create and enforce a multilateral trading system. It was not perfect, of course, but it had succeeded in growing trade and reconciling disputes, which trade even among the closest of allies is fraught. Now a President who did not win a majority of the popular vote is not only critical of the US course but is trying to roll it back.  

The US and China are now engaged in high-level negotiations over trade. China entered the WTO in 2001 as a non-market economy. To join, all the other members had to agree to China’s tariff schedule. Because it was not a market economy, the average tariff is considerably higher than leading market economies. Chinese officials seemed to think that it would automatically be regarded as a market economy after being in the WTO  for 10 or 15 years.  

However, the US and Europe do not see it that way. It is easier to take anti-dumping action against a non-market economy than a market economy. China wants the status and privilege of being a market economy. The US and Europe offer it in exchange for specific actions, including a reduction in the average tariffs, which China appears to be moving toward.  

The US and China do not agree on the bilateral trade balance. A good part of the disagreement turns on how Hong Kong is treated. For many things, China says Hong Kong is part of China, a Special Administrative Region. On trade issues, it wants to say Hong Kong is separate. Shipments of goods from New York to New Jersey are not counted as exports, but mainland sales to HK are considered exports and purchases are considered imports.  They are not.