China’s accession to the World Trade Organisation (WTO) in 2001 created significant alteration in Global
economic relations, this had profound effects on global and domestic trade dynamics. This essay examines the
motivations surrounding China’s WTO accession, exploring economic gain and geopolitical aspirations in
joining. Through the understanding of classical economic theories such as Comparative advantage and the
Heckscher-Ohlin Model, this essay will evaluate the global reception of China's inclusion into the WTO.
Moreover, this examination will scrutinise China's conformity with WTO mandates. Explaining ways in which
China fails to conform, elaborating further on why this might be. Furthermore, this evaluation will include an indepth analysis of the US-China trade war dissecting why it started, how it escalated and how both parties use
regulation and policy to protect their economic interest.
Additionally, this essay will focus on regional trade agreements, and their role in China’s economic philosophy,
as well as criticizing the role they play in China's conformity to WTO mandates. Finally, this essay looks to
examine the impact the aforementioned factors will have on stakeholders including insightful reflection of the
tangible impacts on international economics.
What was China’s motive for joining the WTO?
Historically China's economic and political ideology shut off its trade from the rest of the world this was to the
detriment of its economic power. It wasn’t until the economic reforms of 1978 that China started to open itself
up to foreign trade and investment (Morrison, 2019) The long path of China's economic reforms reached another
landmark in 2001, which brought China's accession to the WTO (Boden 2013).
The WTO signified a global trading network of 164 nations that promote free market trade (WTO, 2023). China
stood to gain greatly by joining the WTO, their accession, in theory, would bring further FDI (foreign direct
investment), and reduced trade barriers (Boden, 2013). Direct Foreign investment into China would prove
lucrative to firms who could see an opportunity in China's extensive labour force, a cheap labour force would
allow for a firm to gain a comparative advantage over potential competitors (Hayes, 2023). It would be this
direct investment that could lead to the acceleration of domestic living standards in China (Chang & Grabel,
2004). However, providing a contrary opinion to the Washington consensus does China want too much foreign
investment as private firms can take some power away from the communist state.
For China, advantage is also gained through the WTO under specific rulesets, an example of this can be seen in
the work of (Cross, 2008) China has a unique position in the World Trade Organisation as it qualifies for Most
Favoured Nation (MFN)status, with a per capita GDP (Gross domestic product) in most regions of less than
$1000. This allows it to argue for special and different treatment normally only extended to developing
countries (Cross, 2008). China's status as a MFN allows them access to low tariffs globally, whilst still
benefiting from economies of scale and government subsidies China becomes impossible to compete with
causing trade imbalances adversely impacting the balance of Global economics.
China's motives in joining the WTO are clear, in their accession China would reap all the benefits of free market
economies such as FDI and access to foreign markets, all whilst being considered a MFN under WTO mandates,
further exacerbating the positive economic outcomes for the Chinese state. Moreover, China's motive for joining
the WTO extends beyond mere economic gain; it encompasses a strategic ambition to harness global trade
benefits while maintaining its unique socio-political framework, a complex balancing act between global
integration and national ideology.
Why was China welcomed into the WTO in 2001?
Leveraging an understanding of key classical economic theories such as Comparative advantage theory first
written by Daniel Ricardo in 1917 and Heckscher’s Ohlem model can give context to the reasoning behind the
global reception of China's accession into the WTO in 2001.
Daniels Ricardo's comparative advantage theory advocates for free trade in that it argues that a nation should
specialise in producing goods where they have an advantage, and they should import goods when another nation
has an advantage (Montevirgen, 2023). Taking the US as an example, leveraging knowledge of Ricardo's
theory, the US is typically known for capital-intensive and high-tech industries, whereas historically China is
known for its abundant labour source. If the US can outsource their labour to the cheaper Chinese markets, they
can gain an advantage over other competitors due to having a lower opportunity cost (Hayes, 2023). This creates
a clear incentive, which explains the US advocation of China's accession in 2001. However, what is not
exemplified in Ricardo's theory is the real-world ramifications of the theory. A limitation of Ricardo's theory is
that it focuses on products and services yet fails to encapsulate the extent to which intellectual property is
transferred. In the case of the US and China, the US invested heavily in technological infrastructure in China,
showing that the mutual benefit isn’t as simple as Ricardo suggests.
Heckscher’s Ohlem theory proves complementary to Ricardo's writing in that it advocates for international
trade. Hecklesher states that labour and capital are the 2 main factors of production (Ronkainen, 2019).
Countries would produce and export goods that required resources or factors that were in great supply and,
therefore, cheaper production factors. In contrast, countries would import goods that required resources that
were in short supply, but in higher demand (Schmitz, 2012).
The factor proportions theory operates in a similar way to Ricardo's theory, however, is once again flawed when
it comes to real-world application. The theory fails to foresee that the factor endowments can evolve, for
example, China in 2001 may have had less capital but due to its increase in exports it became more capital-rich,
changing its competitive advantage, the factor proportion hypothesis fails to account for this.
On paper leveraging the factor proportions hypothesis and comparative advantage theory would allow for
mutual benefit for both the US and China, but scrutinising further you can see that the US may be giving up
more to China than China is giving to them, due to the real-world implications of technology transfer and the
alterations of factor endowments. It would be negligent to assume that the US didn’t know about these realworld implications, which allows scope to analyse the potential underpinning political motive behind
welcoming China to the WTO. In the opinion of the essay, the US saw China's accession to the WTO as a
chance to alter their political ideology, through the free market mandates of the WTO.
China's approach to compliance with WTO mandates
Since joining the WTO in 2001, China’s state-influenced economic strategy has clashed with the WTO’s strict
mandates. China has faced increasing criticism specifically regarding their compliance with mandates
surrounding Intellectual property rights, subsidising industries both of which breach WTO regulations. With
reference to specific examples, this essay will now critique China's compliance and the role their involvement in
RTA’s (regional trade agreements) has in exacerbating these issues.
A great example of China's failure to comply with WTO mandates can be seen in the case of “United States V
China (2007)- Enforcement of IPR”. In this case, the US argued that China did not meet certain mandates of the
TRIPS Act (WTO, 2021). The TRIPS Act is the most comprehensive multilateral agreement on intellectual
property and covers copyright and other related rights (WTO, 2023). In relation to the breaches encapsulated in
this case, although China was found to be in breach of the TRIPS Act the remedies were rather soft and didn’t
act as much of a deterrent to China. In the following years, China made remedies, though the effectiveness of
these remedies is still a subject of debate today. The fact it’s still a subject of debate shows a lack of strict
enforcement by the WTO these rather weak ‘suggested remedies’ are simply not enough to deter a powerful
nation such as China.
Another case that evidences China's struggle to adhere to WTO mandates is the case of “DS519 China subsidies
of producers of aluminium” In this case Canada and the US launched Consultation proceedings with China
regarding their subsidising of aluminium suppliers (WTO, 2017). China is often accused of subsidising their
steel and aluminium industries, allowing for ‘dumping’, this is where firms can flood the market with incredibly
cheap produce, due to government subsidies given to firms (Barone, 2021). This gives China an unfair
competitive edge that other countries under WTO guidelines cannot achieve.
When conceiving the rationale behind this being allowed you must look at one of China's RTA’S, RCEP. In
RCEP China is the largest trading block, understanding this China can use its status to influence regulation
within the RTA (Liss, 2020). Rules in subsidising industry differ between the RCEP and the WTO, it is for this
reason that China can somewhat subsidise industry without repercussions.
With the use of RTA’s China can bend the mandates set by the WTO, allowing them to conform to their statecontrolled economic ideology, whilst still gaining all the economic benefits of a liberalised economy. When
looking at China's compliance with WTO mandates, it would be irrational to expect them to conform to all these
rules when they operate under a differing economic ideology. All WTO mandates are made so nations conform
to the idea of neoliberalism. However, in the work of (Chang & Grabel, 2004) it is argued that the notion there
is no other alternative to neoliberalism for developing countries is wrong. This essay agrees as it is evident in
China's economic success that there are feasible alternatives to Neoliberalism.
The Impact of China's accession to the WTO on stakeholders
Global economics were significantly impacted by China’s accession to the WTO, initially, the impacts looked to
be positive, however, in this section of the report, the impact China's accession had will be comprehensively
evidenced, analysed, and critiqued. A focus will be placed on events leading up to the US-China trade war as
well as an analysis of the enormous impact this dispute has had on not only both parties but the global economy.
China's accession led to them becoming a Global superpower and one of the world's leading economies, this
brought China many positive changes such as access to FDI, access to foreign markets and acquisition of tech.
This can be evidenced by China's exports between 2002-2007 which increased from 2.6%-7.7% as a share of
GDP (Boden, 2012). In 2001-2002, FDI inflows increased by 30% and by 2006 Foreign-invested firms
accounted for 45% of Chinese exports (Boden, 2012).
As shown in (Chang & Gabrel, 2004) FDI has a positive effect on technology transfer and promotion of
knowledge. This increase caused China to become more of a threat to the US in that it became more of an
economic power, this once again questions the economic motive for the US in supporting China’s accession.
As China became a bigger exporter the trade imbalance between the US and China was exacerbated. Since
1996, China’s trade account surplus has consistently been over 2% of its GDP, peaking at 8.6% in 2007 Ref.
This persistent surplus, averaging 3.8% of GDP over 20 years, created discontent in developed countries,
particularly in the U.S., over labour displacement by imports from China (Liu & Woo, 2018). The trade
imbalance which continued to worsen was a partial rationale behind the initiation of the US-China trade war in
2018. Other reasons are unfair acquisition of US tech and threats to national security (Liu & Woo, 2018). The
increase in the trade imbalance problem is a great example of theories such as comparative advantage causing
unseen issues when used in real-world situations.
The US initiated the trade War in May 2018 by introducing 25% tariffs on steel and 10% on aluminium imports.
The aim of this was to boost domestic production and reduce competition from foreign markets (BBC, 2019),
this concept is known as protectionism. The effect of these initial and further tariffs only damaged welfare
within the US and China, though provided unintentional positive effects in other nations due to trade diversion.
With Chinese imports increasing in price for the American consumer, consumers looked for cheaper alternatives
in other nations providing economic growth in these nations.
The trade war led to increased uncertainty and reduced openness, potentially deterring investment and reducing
productivity in both countries (Itakura, 2019). Moreover, the trade war resulted in a reduction of GDP in both
China and the USA by −1.41% and −1.35% respectively, affecting nearly all sectoral imports and outputs in
these countries (Itakura, 2019).
This essay highlights the profound shifts in China's trade alliances and strategies since joining the WTO. Vital to
this discussion was an understanding of China's compliance with WTO mandates, particularly concerning
industrial subsidies and intellectual property rights. China's enormous economic expansion, evidenced by
significant increases in FDI and export inflows, hasn’t come without contention. China's laboured approach to
WTO compliance has launched debates, sparking the trade war with the US. The conflict, characterized by
tariffs and other countermeasures, has had extensive economic implications not only affecting the parties
involved but the Global economy.
The complex interplay between economics and politics is made apparent by the trade war. Both nations involved
faced harsh welfare impacts, whilst other nations benefited from trade diversions.
China's WTO accession presents the challenges in assimilating a significant economy with radically different
political and economic attributes into the global trading system. The diverse impact of this integration reveals to
delicate balance between national interests and worldwide economic cooperation. In today’s ever-evolving
globalized economy, understanding the dynamics of economic policy and international trade is crucial, lessons
taken from China's WTO accession prove key to this understanding. This essay has critically discussed these
shifts, exploring the economic and regulatory motivations, mechanisms and outcomes for various stakeholders
involved.