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Hot on the heels of a US$214 billion trade deficit with China, the US has launched another WTO salvo. The FT reports:

    “The US on Friday launched a major trade dispute with China over alleged subsidies for manufacturing exports in an escalation of economic tensions with Beijing.

    Susan Schwab, the US trade representative, said: “Our decision to bring this case to the World Trade Organisation comes after our efforts at dialogue failed.”

    The US filing alleges China “uses its basic tax laws and other tools to encourage exports and to discriminate against imports of a variety of American manufactured goods”.

    “The subsidies at issue are offered across the spectrum of industry sectors in China – whether in steel, wood products, information technology, or others,” said Ms Schwab.”

The report notes an element of domestic politics, and that this is an aggressive step (though whether it is a forward or backward one is debatable!). As usual, it is unlikely that aggressive threats will do anything but harden the already protectionist-nationalist Chinese line (as Secretary Paulson has noted), but reform of export rebates and tax benefits are already on the Chinese agenda, as is more balanced trade, so perhaps this is as much a message for the domestic audience as it is for China. Anyway, the other side of the US-China trade story is outlined here.

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