BARGAINING WITH THE RISING POWER: An Analytical Model of China's Trade Policy-making

Abstract

In bilateral trade disputes with China, the US has greater aggregate power and bargaining resources, yet it had uneven success in extracting concessions. The dissertation aims to address this question: Why does American pressure encounter Chinese resistance, different in issue-topics and time period? In order to interpret China's trade policy-making, I build an analytical framework, which integrates three streams of scholarship: (1) Bounded rationality models how China, as a bounded rational player, adjusted behaviors based on its perception in the learning process; (2) The garbage can model studies the Chinese government as organized anarchies and its non-standard operation; and (3) The two-level game theory reveals how China strikes the balance between domestic bargaining and international negotiations. With the assistance of this model, I conduct a detailed case study of the Sino-American negotiations for the 1999 Bilateral Agreement on China's Accession to the World Trade Organization (WTO).

My research reveals that China tended to yield to American threats when the Chinese reform-minded top leaders finished power transition, when trade was perceived as a solution to China's economic problems, and when the US Congress and executive branch united for credible threats. American pressure confronted strong Chinese resistance when the Chinese protectionists and nationalists had leverage so that the political cost of compliance was high for pro-trade officials, and when the Chinese perceived the divide in American commercial interests and the realignment in American political arena on China issue. Moreover, American pressure encountered less Chinese resistance in issue-topics, behind which were a politically weak industry and a ministry. By contrast, American pressure encountered strong resistance in issue-topics, behind which were a politically strong industry and agency created by long-term policy preference.

Upon the case study, I argue that the effectiveness of American threats backed by trade sanctions declined. In bargaining with this rising power, the US should first discern how China perceives its self-interests and build strategic linkage of it to trade liberalization, and then employ the combination of persuasion with appeal to self-interests and tying hands by congressional pressure in bilateral trade negotiations.