A dispute between the U.S. and China over illegal trade practices, which has sparked worries over a potential trade war between the world’s two largest economies, has “more bark than bite,” according to the World Trade Organization’s (WTO) Director General Pascal Lamy.
Washington last week complained to the WTO that China doled out at least $1 billion in illegal subsidies to Chinese auto and auto parts exporters during 2009-2011, giving them an advantage over their U.S. competitors in the American car market, the second-biggest in the world after China’s.
China replied with its own complaint, saying Washington had applied anti-dumping and countervailing duties to two dozen Chinese products including paper, steel, tires, magnets, chemicals, kitchen appliances, and wood flooring.
“Well, I believe fortunately there's more bark than bite,” Lamy told CNBC in an interview aired on Monday, adding that a trade war between China and the U.S. was unlikely.
“We're in a world where there are no more trade wars. We have trade frictions, disputes, negotiations, court cases, but if two countries disagree on whether or not the rules of international trade are breached, there exists machinery with due process that decides who's right and who's wrong,” he said.
The trade dispute between China and the U.S. comes as both countries struggle with slowing manufacturing sectors in a politically important year. A U.S. presidential electiontakes place in November, while a once-in-a-decade leadership change in Chinais expected to take place over the next few weeks.
These domestic political issues certainly have a role to play in trade disputes, Lamy said.
“We have these tensions as could be expected. The very harsh economic crisis which is hitting many countries has triggered protectionist reactions,” Lamy said. “We all know it doesn't work but there nevertheless remains an element of domestic politics.”
And the economic crisis will continue to weigh on the global economy, the WTO said on Friday, as it slashed its estimate for 2012 global trade growth to 2.5 percent from a forecast of 3.7 percent in April.
It also cut its trade forecast for 2013 to 4.5 percent growth from 5.6 percent, citing weakness in Europe.
—By CNBC’s Jean Chua.