China's Export Growth and the China Safeguard: Threats to the World Trading System?

Abstract

China's deepening engagement in the global trading system and the threat of its export capacity have affected the negotiation, formation, and rules of international agreements. Among other changes, China's 2001 accession to the World Trade Organization (WTO) introduced new allowances for existing members to deviate from core WTO principles of reciprocity and most-favored-nation (MFN) treatment by giving existing members access to a discriminatory, import-restricting China safeguard based on the threat of trade deflection. This paper asks whether there is historical evidence that imposing discriminatory restrictions against China during its pre-accession period led to Chinese exports surging to alternative markets. To examine this question, we use a newly constructed data set of product-level, discriminatory policy actions imposed on Chinese exports to two of its largest destination markets over the 1992-2001 period. Perhaps surprisingly, we find no systematic evidence that either U.S. or EU imposition of such import restrictions during this period deflected Chinese exports to alternative destinations. To the contrary, we provide evidence that such import restrictions may have a chilling effect on China's exports of these products to secondary markets - i.e., the conditional mean U.S. antidumping duty on China is associated with a 20 percentage point reduction in the relative growth rate of China's targeted exports. We explore explanations for these puzzling results as well as potential implications for the sustainability of the rules of the world trading system.