China’s rise has precipitated a crisis within the multilateral trading system.W hile frequently attributed to China’s model of state-sponsored capitalism, this chapter shows why that framing of the problem is misleading.T he primary complaints that the US and others have about China’s trade policy are not, in fact, unique to China, but common features of the developmental state.I nstead, I argue, the more fundamental challenge to the trade regime arises from the China paradox – the fact that China is both a major economic heavyweight and a developing country.C onflict over how China should be classified and treated under global trade rules has paralyzed global trade governance and led to a breakdown in rule-making.I n addition, China’s rise has sharply constrained the US’s “institutional power” – its power over the institutions and rules governing trade – leading to an erosion of American support for the multilateral trading system it once created and led.

This chapter shows how conflict between the American hegemon and a rising China led to the collapse of the Doha Round (2001–11) and the breakdown of the WTO’s core negotiation function. At the center of the Doha standoff, I argue, is a dispute between the US and China centered on how China should be treated in the multilateral trading system. China has maintained that, as a developing country, it should be entitled to the special and differential treatment (SDT) promised to developing countries. The US, however, is unwilling to extend such treatment to its chief rival, and therefore refused to conclude the round without greater market opening from China. China rejected American demands that it undertake additional liberalization concessions, and, in doing so, showed that it has sufficient power to refuse to concede to US demands that it views as fundamentally against its own development interests. The US has a long track record of successfully overpowering opposition in multilateral trade negotiations and securing assent for its desired outcomes. Yet, in contrast with the past, the US has been unable to overpower China, and this deep and lasting impasse between the two powers resulted in the collapse of the Doha Round.

This chapter examines efforts to establish new global rules to restrict export subsidies for coal-fired power plants, which are highly polluting and a major contributor to climate change. Government-backed export credit for coal power plants acts as a form of export subsidy, and thus promotes the expansion of such plants abroad. The US spearheaded multilateral negotiations within the context of the OECD Arrangement to prohibit the use of export credit for coal power plants. However, since China is not part of the Arrangement, it was not a participant in the negotiations or bound by the new disciplines created. China’s absence, I argue, weighed heavily over the negotiations and undermined efforts to construct an ambitious agreement. OECD exporters were extremely resistant to agree to restrict their use of export credit when China—the world’s largest supplier of export credit for overseas coal plants, accounting for nearly half of all export credit in this sector—would face no similar restraints on supporting its exports. Without China’s participation, the impact of the resulting agreement is severely limited. This case thus highlights the difficulty of building effective global trade rules today without the participation of China.

The American hegemon’s ability to exercise power in and through international institutions has been sharply constrained by the rise of China. China has consistently thwarted US efforts to construct new global trade rules, producing a recurrent deadlock across a wide range of different areas of global trade governance. The rise of China and its resulting clash with the US is blocking global rule-making in trade and undermining the institutions designed to prevent global trade wars. The China paradox—the fact that China is both a developing country and an economic powerhouse—has created significant challenges for global trade governance. The issue of whether, and how, the rules of the multilateral trading system will apply to China is proving to be a difficult and intractable source of conflict. While China demands exemptions from global trade disciplines as a developing country, the US refuses to extend special treatment to China and insists on universal rules and reciprocal concessions. This fundamental conflict over how China should be treated in the multilateral trading system, which has paralyzed global rule-making in trade, has profound implications—not only for the governance of global trade, but also for pressing issues related to global development and environment.

China’s rise has transformed the global politics of agricultural subsidies, which is among the most controversial issues in the trading system. China has emerged as the world’s largest subsidizer, upending the entrenched understanding of agricultural subsidies as a harm perpetrated by the Global North upon the Global South. From a North-South battle, WTO negotiations on agricultural subsidies have been transformed into a conflict centered on the US and China. The US, as the world’s largest agricultural exporter, is eager to restrain China’s subsidies and insists that it will only agree to stricter rules on its own subsidies if they also apply to China. But China has refused, insisting that as a developing country, it should be exempt from any new restrictions on subsidies. The US has been unable to force China to accept disciplines on its subsidies, leading to a stalemate. While reducing trade-distorting subsidies remains a pressing concern for developing countries, efforts to negotiate new and strengthened disciplines at the WTO have been paralyzed by an impasse between the two dominant powers, heavily shaped by the hegemonic rivalry between the two states. China, along with the US, is now blocking pro-development reform of the trading system at the WTO.

This chapter analyzes China’s impact on the global governance of export credit. For decades, the OECD Arrangement has been held up as a successful example of liberal trade governance, with its system of disciplines proving highly effective in preventing a destructive, competitive spiral of state subsidization via export credit. I show, however, that the rise of China has profoundly altered the landscape of export credit and disrupted its governance arrangements. China has emerged as the world’s largest provider of export credit, but China has refused to join the Arrangement and it has persistently thwarted efforts to negotiate a new set of international rules. China has little incentive to agree to disciplines on its use of export credit, which plays a central role in its development strategy. Despite considerable US pressure, China has refused to capitulate and subject itself to international disciplines that it views as fundamentally against its interests. China has shown that it has sufficient power to stand up to the US in defending its development interests. Yet the result, I argue, is that China’s rise is undermining the liberal regime for governing export credit by eroding the efficacy of existing disciplines and blocking efforts to construct new ones.

This chapter introduces the central argument and themes of the book and situates its contribution within contemporary debates regarding the rise of China and its impact on global economic governance. The book challenges two key prevailing views: (1) the US maintains its dominance in the international system, with China too weak to pose a serious threat to American hegemony; and (2) a rising China can be integrated into the US-led liberal international economic order. I argue that an important aspect of US hegemony to date—its ability to lead or dominate global institutions—has been severely undermined by the rise of China. If the US once “ran the system,” this book demonstrates the extent to which that has now been disrupted. China’s emergence as a counterweight to US power has sharply curtailed the US’s institutional or rule-making power. The US and China are engaged in a struggle over the rules of global trade, with each seeking to shape the rules to reflect and advance its interests. China has refused to defer to American power or simply be a rule-taker, but instead has repeatedly blocked the US from obtaining its objectives. US–China conflict is profoundly undermining global trade institutions and rule-making.

Amid widespread concern about the role of subsidies in the depletion of global fish stocks, the UN Sustainable Development Goals identified achieving a WTO agreement to restrict fisheries subsidies as a major international priority. Seen as an important means for the WTO to contribute to addressing a pressing global development and environmental issue, and thus resuscitate the institution following the Doha Round collapse, fisheries subsidies have been the subject of intense negotiating efforts at the WTO. However, the key issue of contention is how China and other large emerging economies should be treated under any new disciplines. The fisheries subsidies issue sharply underscores the problem with extending special and differential treatment (SDT) to China: since China now has the largest industrial fishing fleet in the world and provides the greatest volume of subsidies, exempting its subsidies from disciplines would severely harm the sustainability of global fisheries. Efforts to negotiate a standalone agreement on fisheries subsidies have run aground amid this central issue of dispute. The result has been a failure to arrive at new disciplines, the consequences of which are felt most keenly by poor developing countries whose populations are heavily dependent on fisheries for food security, livelihoods, and exports.