Is China a Market Economy?

Matthew McMullan

Matthew McMullan Communications Manager, Alliance for American Manufacturing

This week President Donald Trump will meet his Chinese counterpart, President Xi Jinping, at the president’s fabulous Mar-a-Lago resort in Florida.

This will be the pair's first meeting, and they’re gonna have a lot to talk about. Shipping lanes in the South China Sea. Missile tests on the Korean peninsula … serious stuff.

But they’re definitely gonna talk about trade, too. China and the United States share the largest bilateral trade relationship in the world, and our trade in goods is particularly lopsided. We run an approximate goods trade deficit with China of $30 billion every month, and we have for a while. That saps industrial ability and jobs. And Trump took a real tough line on this during the campaign.

One awkward subject that might come up, though, is China’s bid for market-economy status.

Here’s what that is: Under the rules that helped China join the World Trade Organization, the United States (and others) were allowed to themselves determine whether (or not) China ran a “market economy.” Does the government prop up key industries? Are businesses, foreign and domestic, allowed to operate without government interference? That kinda stuff.

China is clearly a non-market economy, and maintaining that status is important, because it allows the United States to fairly ascribe tariffs (when they’re needed) to subsidized Chinese goods.

We wrote about it here a few months back, when the Obama administration left the issue as-is, meaning: China’s status as a non-market economy in the eyes of the U.S. government remains intact.

China really, really wants that status changed. And Trump administration, through the Commerce Department, is expected to soon undertake a review of the status (remember, the Obama White House simply left the status as-is; it didn’t review it).

We welcome a review. Here are the Commerce questions that will be asked:

  • Is China’s currency convertible into the currency of other countries?
  • Are wages of Chinese workers determined by free bargaining between labor and management?
  • Are foreign companies or joint ventures free to make investments in the Chinese market?
  • Is China’s economy free of government ownership and/or control over the means of production?
  • Is China’s economy free of government control over the allocation of resources and price and output decisions of companies?
  • Does China operate on the global trade stage in a transparent manner?

If China can get to “yes” on those questions, its market economy status can be changed. Simple as that.


Reposted from AAM.