| Sumario: | Today's largest trade frictions stem from differences between China and the OECD regarding the appropriate role of government. There are two types of differences. The first are legitimate attitudinal differences towards industrial policy (the use of subsidies), competition policy (the use of forced industry consolidation), and innovation policy (weak protections of intellectual property). China and the OECD will have to reach an accommodation on these differences if the end game is a rules-based trading system. Accommodation is possible, but unfortunately, both the US and China are adopting bullying tactics that diminish the effectiveness of the WTO and threaten the current rules-based system. The second class of differences is political and reflects China's intentional lack of policy transparency and its generosity towards favoured firms. These differences will never be WTO compliant and China must either reform or give up its access to OECD markets.
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