US-China trade war: A way out?

Abstract

Recently, a group of eminent Chinese/US economists and legal scholars issued a thought-provoking Joint Statement on 'US-China Trade Relations: AWay Forward'. However, the Joint Statement does not provide practical solutions to the real issues in the bilateral negotiations. Moreover, by granting excessive policy space to the two largest trading nations, it would encourage them to further deviate from WTO rules and undermine the multilateral trading system. Drawing on the Theory of Distortions and Welfare, we put forward an alternative framework for the parties to tackle protectionist and trade distortive policy instruments while leaving sufficient policy space for them to pursue non-protectionist policy goals. Our framework would minimize WTO-inconsistent outcomes and prevent further erosion of the multilateral system as we encourage the parties to negotiate in aWTO-consistent manner. Hopefully, this would also provide the groundwork for more inclusive trade negotiations under the multilateral trading system.