A great many negative consequences would follow a successful effort by the United States to pull the MFN rug out from under the world’s second-largest economy. If this key pillar of global trade is taken away, the collapse of the WTO itself could follow.
At a meeting with Chinese President Jiang Zemin at dusk on Nov. 15, 1999, as I recall, Gene Sperling, U.S. Director of the National Economic Council, told his host that the U.S. negotiation team did a glorious thing in a not-so-glamorous place earlier that day. He and Charlene Barshefsky, the U.S. trade representative, briefed U.S. President Bill Clinton by phone on the agreement they had reached with Chinese Premier Zhu Rongji regarding China’s joining the World Trade Organization.
They made the phone call in a women’s restroom at China’s Ministry of Foreign Economic Relations and Trade. Clinton was taking a bath in a hotel in Ankara, Turkey, and gave them the green light to sign the deal.
That bathroom-to-bathroom call across the oceans paved the way for China’s accession to the WTO, which in turn necessitated a shift in Washington’s policy on China’s trading status. Since 1980, the U.S. Congress had reviewed its status annually, but now, as China prepared to join the WTO, the U.S. had to accord it permanent normal trade relations, or — in WTO terminology — most favored nation status.
The WTO’s cardinal principle of non-discrimination requires members to grant MFN status to each other, unconditionally and permanently. It means that while a member is obligated to accord the status to all other members, it is entitled to that privilege itself as an inalienable right.
In truth, MFN status has something sacred about it. Few WTO members have attempted to cancel other countries’ MFN status even when they are at war. Armenia and Azerbaijan had armed conflicts from time to time, and some countries in the Middle East are in a perennial state of war. But they have respected the MFN status of their adversaries. Now, MFN status has become a fundamental principle in the international trading system established under the WTO.
In alignment with the obligations of the United States as WTO member, Congress approved the PNTR for China in October 2000.
Fast forward to today. Washington is moving to undo the deal as part of its effort to decouple with China economically. Since 2021, many legislative bills aiming to rescind China’s PNTR status have been proposed. In September, three Republican congressmen, including Marco Rubio, the current U.S. secretary of state, initiated such bills. The 2024 Republican Party platform called for revoking China’s PNTR, and President Donald Trump himself floated the idea during his campaign. Pursuant to a presidential memorandum, the U.S. trade representative will soon begin assessing legislative proposals on China’s PNTR status and make recommendations for changes. Given its popularity among politicians in Washington, the move will likely come to pass.
However, China’s MFN status is not given as a favor by the United States. Rather, it is an obligation the U.S. must honor. Washington’s revocation amounts to going back on its commitment and depriving China of its rightful status as a member of the WTO.
The efforts are designed to blow up the. entire trade relationship between Washington and China. The move would mean significant added costs for China. The U.S. accounts for 14.8 percent of China’s exports to the world — a major market responsible for 2.9 percent of China’s GDP in 2023. If the call for canceling China’s PNTR becomes reality, a large proportion of Chinese products currently sent to the U.S. would be shut out.
On the other hand, MFN status is a two-way street. If it rescinds China’s MFN status, Washington will find itself bidding farewell to its own MFN status in China. As a result, U.S. products would end up losing Chinese market share in competition with goods from other countries, which are taxed at an average rate of around 7 percent. According to the BBC, 17 percent of U.S. agricultural exports, valued at $33.7 billion, went to China in 2023. These and other goods readily available elsewhere — such as crude oil and airplanes — risk being kept out of a market that is set to become the world’s largest in the near future.
The move would prove costly for the U.S. in other fields as well. MFN status covers trade in services, investment, trade facilitation and intellectual property rights. In the services sector, for instance, the U.S. enjoys a substantial surplus with China. According to the U.S. Department of Commerce, the United States ran a surplus of $31.9 billion with China in 2024, up from $26.6 billion in 2023. Without MFN status in China, American companies would probably find themselves disadvantaged against companies from other places. The loss would be particularly painful at a time when China is ramping up measures to open its own huge and lucrative services sector, including in the financial, telecommunications and health arenas where the U.S. currently excels.
Washington has shown a penchant for weaponizing MFN status. It canceled Cuba’s MFN status more than six decades ago and has continued to perpetuate the policy. More recently, the United States, together with its Western allies, revoked the MFN status of Russia and Belarus soon after Russia-Ukraine conflict broke out. Washington must have found it handy to take away MFN status as a means to punish its adversaries.
However, Washington’s sledgehammer may not work as it imagines when it comes to China. Despite its all-out efforts, Washington can hardly claim victory in its trade war and semiconductor prohibition drive against China. Huawei has emerged as dynamic and strong as ever before, and DeepSeek caught the world off-guard with its innovations. If Washington goes ahead with its plan to cancel China’s MFN status, no one can be sure which will be harmed more, China or itself.
Moreover, canceling MFN status for China will have a profound impact far beyond the two countries. China and the U.S. accounted for 42.9 percent of the global economy and more than 22 percent of global trade in 2023. And they are the largest trading partners for almost all trading nations around the world. The decoupling of the world’s two largest economies and largest trading nations would disrupt global supply chains and lead to the kind of fracturing that the International Monetary Fund fears — that kind that could slash global economic output by up to 7 percent, making the world economy a victim as well.
Moreover, revoking China’s MFN status would be akin to crashing a wrecking ball into the multilateral trading system. The idea essentially does away with the MFN principle, the cornerstone of the system. Coupled with the WTO’s already paralyzed dispute settlement system, it would make Washington’s destruction of the organization virtually complete. If this key principle of global trade is destroyed, can the collapse of the WTO itself be far away?
