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China & the WTO

In the spirit of the discussion about “exchange controls”, here’s a quick article about China’s restrictions on the sale of foreign goods in the domestic market. China is allowed to impose traditional “capital controls” according to the IMF and WTO agreements; but the WTO doesn’t like China trying to regulate trade & commerce. So, we see some separation here between capital controls and trade/commercial regulation.


My hunch–and it is just a hunch–is that China is finding it more difficult to rely strictly on conventional capital controls–restrictions on investment, foreign ownership, &c–and is turning to more rigorous restrictions on trade and commerce. By channeling imports through state owned enterprises, China can have a larger influence on the prices (and total sales) of these goods in the home market. That will influence the balance of payments and the over all domestic price level.

As we’ll see, the IMF was designed to allow for–even celebrate–capital controls. But the GATT/WTO was created to combat all such management of trade and commerce. Why the seemingly antithetical positions–one in favor of laissez-faire and the other decidedly not? Stay tuned: we’ll develop that more later in the term. But here’s the quick answer: Keynes recognized that states needed some regulation to ensure policy autonomy; and he figured that capital controls would be the most innocuous types of restrictions.

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