“China is not a market economy,” President-elect Donald Trump said in Iowa a few days ago. In the past few months, Trump has also pledged to undo the North-American Free Trade Agreement (NAFTA), beat back the Trans-Pacific Partnership (TPP), impose huge tariffs on China and Mexico, and rewrite the rules of trade.

Nevertheless, the Obama White House, the EU and Japan beat Trump in the reset of the international trading regime by refusing China its market economy status (MES). The key clause in China’s agreement for joining the World Trade Organization (WTO) expired on Sunday.

The WTO “reinterpretation”

When China joined the WTO on December 11, 2001, it was written into the agreement that member states could treat China as a “non-market economy” (MES), due to the size of the Chinese economy, government intervention and its state-owned enterprises. As a result, advanced economies could ignore Chinese domestic price comparisons and rely on “constructed values” to reflect the “true” Chinese economy.

In turn, those “surrogate figures” allowed them to impose heavy anti-dumping duties on the basis that China’s low prices did not reflect market realities.

As the December 11, 2016 deadline for this practice approached, the advanced economies’ lobbyists, which represent some of the most uncompetitive companies in a few sectors (especially steel), began to urge WTO members to “reinterpret” the accession language. Now it was argued that in the original agreement there was an “escape clause,” which would conveniently justify the continued treatment of China as a non-market economy.

In the past 15 years, the surrogate figures have permitted wide discretion and manipulation of price data, which has been used as basis for anti-dumping charges; that is, tariffs up to 40 percent higher than normal anti-dumping duties.

Economic issues and geopolitical ploys