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The yawning divergence between the political economies of China and the west has once more become the sub-text of crucial efforts to avert a surge in trade protectionism. The US, EU and Japan last week ramped up pressure on China on trade, subsidies and intellectual property issues. In a rare effort towards international co-operation by the Trump administration, the three issued a statement on the sidelines of a World Trade Organization meeting in Buenos Aires last week that took aim at “severe excess capacity” in steel and other sectors and the role of illegal subsidies and state-owned enterprises in causing it. The statement, which also targeted the forced transfer of intellectual property, did not name China directly. But officials have made clear that China is the statement’s main target, though not the only one. The intention behind the trilateral alliance is to avert a lurch towards protectionism by wringing concessions from Beijing.
But from a broader perspective, such mounting tensions represent an existential test for the global trading system. At issue is whether China’s state-driven, hybrid system has become so divergent from free-market principles that fruitful co-operation is precluded. The hope of “convergence” with the liberal economic order that attended China’s accession to the WTO in 2001 appears dead. Beijing has launched suits at the WTO against the US and EU for failing to follow through on what it claims was their promise to accord China “market economy status” within 15 years of its accession into the world trade body. China wants to be regarded officially as a market economy because such a designation boosts its ability to fight dumping cases against it.