The Role of Arbitration in the US-China Trade War

Arbitration plays a background role in the US-China trade talks, but is it being used to its highest potential?

The US-China trade war is the broad name given to a series of ongoing negotiations over mutual access to consumer markets and the onus of the trade deficit between The United States and China. After a series of false starts, the talks appeared to be reignited when President Xi visited President Trump at his Mar-a-Lago resort on April 7, 2017, and emerged with a 100-day action plan to resolve their trade disagreements. This plan bore a trade deal the following May, opening the way for US beef and natural gas to make its way to China. However, attitudes were cooled in July 2018, when the US levied specific tariffs that covered about $34 billion of goods, effectively nullifying the deal. After last summer’s sudden disengagement, China will be hesitant to sign another deal so soon. Backing out of a trade deal agreed upon by the two heads of state is a political show of bad faith, so China now has the leverage to pen the next deal in their favor. 

After such a significant fumble, the U.S. team has to make a play that mitigates that leverage. Our unilateral and bold style of negotiating will not be effective against a partner who has the vast purchasing power and labor force that China does. Submitting to a third-party arbitration would reaffirm our commitment to fair and balanced dealing, while also adding legitimacy to our position, which has been undermined by political goofs and gaffes. If we supplement a commitment to the arbitration process with a promise to eliminate the ‘zeroing’ method of calculating antidumping duties and an emphasis on export of services, the US will be in a strong position to move forward at our next negotiation session. In addition to having strategic value, arbitration may have economic value as well. 

Typically, going into arbitration would be faster than filing a suit with the World Trade Organization and beginning the litigation process. The arbitration process costs less time and consequently, less money. Both governments are likely interested in spending less money on the trade talks and given that this is a dispute between governments who are spending tax-payer’s money, an ethical argument could be made against incurring the high costs of litigation when a cheaper option such as arbitration exists. A trade war, like any other war, is expensive. Arbitration could cut the costs of waging it. 

Finally, the WTO’s arbitration panel has already resolved many smaller incarnations of the US-China trade dispute and it will continue to fill the gaps left by litigation. In fact, the road to arbitration is littered with fruitless lawsuits. Once a suit is finished and a decision is rendered, either party can choose to reject it, sending them to arbitration. Just last week, the US rejected China’s request for $2.4 in compensatory sanctions as a penalty for the US also rejecting a previous WTO judgement. This means the parties will end up before the arbitration panel after all. If Washington is willing to honor a judgement from arbitration but not one from litigation, then we should pursue that method of dispute resolution from the start. 

It’s time to put our inflexible strategy to rest and try a different approach. The unpredictability of the US stance must be mitigated by a stable and proven model of dispute resolution. On top of giving much needed stability and credibility to the negotiation process, committing to arbitration might also save us time and money in the long run. And if the US and China continuously and naturally end up in arbitration anyway, it might be the key to creating harmony out of discord.

By Eleanor Holloway, Social Media Editor

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