China gives up its trade perks

It’s the year 2000. The world has survived Y2K. None of Conan O’Brien’s predictions have come true. And the US House of Representatives has just passed a bill normalising trade relations with China and paving the way for its accession to the World Trade Organisation (WTO).

Bill Clinton reasons that the US has a "far greater chance of having a positive influence on China's actions if we welcome China into the world community instead of shutting it out," as he signs the bill into law.

In Beijing, the shots of Maotai are flowing. China is about to benefit from immediate tariff reductions and large cuts on trade quotas on its products in return for giving foreign companies more access to its enormous market.

Fast forward 25 years to this past Tuesday. At a side event during UNGA week in New York, Beijing's No.2, Premier Li Qiang, made the surprising announcement that China will voluntarily give up its access to Special and Differential Treatment under ‘developing nation status’ (though it intends to keep its status as a developing nation).

In those intervening 25 years, China’s GDP has grown from $1.3 trillion to ~$19 trillion, a staggering ~13x increase (for reference, the US economy has increased about 2.7x in the same period). Today, China accounts for 20% of global GDP.

So that’s the news, but the question is, why is China voluntarily walking away from the benefits that helped fuel its rise, and why now?

1. 🎁 Setting a positive tone with Trump

Countries like China and India's insistence on keeping their self-declared "developing" status — even as China subsidised state industries and forced technology transfers from the foreign companies it had promised to welcome — has long stuck in the craw of many WTO members, including the US.

Trump and Xi recently announced they’ll meet next month to discuss a wide range of issues, including access to chips, a TikTok deal, and a possible US-China trade deal. China’s decision to give Trump an ‘early win’ on something he’s long griped about will help create positive momentum ahead of that meeting.

2. 😇 Demonstrating ‘leadership’ to the rest of the world

Consider the contrast: as President Trump mocked the UN’s toothlessness (perhaps not inaccurately) and told member states their countries were “going to hell”, China was drawing praise from WTO Director General Ngozi Okonjo-Iweala, who said “[China’s announcement] is the culmination of many years of hard work” as she applauded China’s leadership.

The Nigerian-born leader of one of the world’s best-known multilateral organisations praising them in front of more than 140 world leaders, while the US president gripes about broken escalators? China’s leaders couldn’t have scripted it better.