China Loses in U.S. Tariff Dispute with at WTO, Demands End of Steel and Aluminum Duties

Headquarters of the World Trade Organization in Geneva, Switzerland (WTO)

The Lede: On Wednesday, a dispute settlement panel of the World Trade Organization (WTO) found that China had not followed its organizational obligations to international trade rules when it imposed extra duties on certain imports from the U.S. in response to the latter’s tariffs on steel and aluminum.

What We Know:

A panel of three WTO experts agreed with Washington’s claims that China’s tariffs denied the treatment as a so-called most favored nation, and that Beijing violated other trade concessions it made when it joined the WTO. The panel emphasized that the additional duties China imposed on the U.S. were “inconsistent” with provisions of the 1994 General Agreement on Tariffs and Trade (GATT) and that Beijing should bring its practices into conformity with its obligations to the GATT.
The Office of the U.S. Trade Representative said it was pleased with the WTO’s decision. China's Commerce Ministry announced that it had noted the decision and would be reviewing the ruling in order to follow up later. Beijing also demanded that the U.S. immediately lift tariffs imposed on steel and aluminum imports.

The Background: This dispute began in 2018 when then-U.S. President Donald Trump acted in accordance with Section 232 of the Trade Expansion Act, which authorizes the president to adjust the imports of goods or materials from other countries if the quantity or circumstances surrounding those imports are deemed to threaten national security interests. The Section 232 investigation in 2018 led to the Trump administration imposing a 25 percent tariff on steel and a 10 percent tariff on aluminum imported from a number of countries including China. In response to these tariffs, China requested dispute consultations with the U.S. at the WTO and imposed retaliatory tariffs on nearly $3 billion in imported U.S. products at between 15 percent and 25 percent. In December 2022, the WTO also ruled that those original U.S. tariffs violated international trade rules, but the U.S. condemned the outcome of that ruling and has not lifted those tariffs.

Likely Outcomes:

China has the option to appeal the ruling within 60 days, but that would effectively place it in a legal void as the WTO appellate body has not operated since 2019 because the U.S. has blocked appointments of new judges. This has rendered the appellate body incapable of delivering a judgment. Beijing may nevertheless appeal the ruling to voice its objection to the WTO results. China may also try to disregard the ruling and keep the tariffs in place just as the U.S. has with its tariffs that run afoul the WTO’s rules. In that case, all eyes would be on the WTO to respond.
Whether the international trade rules of the WTO are being enforced fairly or not, this represents another example for China and those countries that find themselves at a disadvantage in the U.S.-led rules-based world order. Further down the line, countries in this situation may view the WTO and other U.S.-led organizations with increasing suspicion and consider the merits of participation.

Quotables:

"The United States is pleased with the World Trade Organization (WTO) panel report released today, recognizing that the U.S. Section 232 actions on steel and aluminum are security measures, and that the People’s Republic of China (China) illegally retaliated with sham 'safeguard' tariffs.” – statement from the office of the U.S. Trade Representative

“Regrettably, the US, as the world’s largest economy and the main founder and important beneficiary of the multilateral trading system, has in recent years disregarded multilateral rules and the expectations of its members.” – statement from the Chinese ministry of commerce

Good Reads:

Chinese duties on U.S. imports 'inconsistent' with WTO obligations: panel (Nikkei)

US welcomes WTO panel report on China steel, aluminum tariffs (Reuters)

WTO finds China acted ‘inconsistently’ by imposing additional duties on certain US imports (SCMP)

China lashes out at US ‘double standards’ at the WTO (SCMP)

China demands U.S. lift steel, aluminum tariffs after WTO ruling (Marketwatch)