China is now the world’s largest exporter of goods, yet it self-designates as a developing country in the World Trade Organization (WTO). This, and the fact that it is recognized as a developing country by the international financial institutions is, understandably, a source of friction between China and the United States and its allies. China, though evidently a world power, remains a developing country according to any plausible criterion. China exhibits features like those of other upper-middle income countries, including institutional weaknesses, corruption, and the vulnerability of its large poor population. For example, the share of agricultural employment in China is 25%, compared to 3% in high- income countries and 22% in upper-middle-income countries. Here, I discuss the implications of China’s dual status—world power and developing country—for Chinese policy and for its trading partners.
I focus exclusively on the economic considerations associated with China’s integration into the world trading system. Though the importance of security, geopolitics, and concerns about human rights in shaping China policy is evident, I leave those issues to others better equipped to deal with them. I take an outcome- and data-driven approach to evaluate China’s trade relations and, where possible, I try to avoid the legalistic WTO- centered approach taken in many discussions of the subject. This is because what determines trade outcomes is not the fine print of trade agreements, but the general direction policymakers adopt and the actions of firms. Furthermore, with the WTO stalled, the big changes in policy are occurring outside that vital organization.
Even though they are normally the subject of distinct jurisprudence, I treat international trade and foreign investment as two sides of the same coin, which in economic terms is what they typically are. For example, trade in services is carried out predominantly through foreign investment (Mode 3 Foreign Establishment). In the era of complex global value chains, it is difficult to promote trade—whether in manufacturing or services— without promoting foreign investment. Often, when I refer to ‘trade’ I convey messages that also apply to foreign investment. I refer to the United States and its main allies (the European Union, Japan, and the UK) as the ‘West’ or the ‘Western powers’.