The U.S. government is said to have warned the European Union against granting “market economy status” (MES) to China. This status would impede EU member states’ ability to impose antidumping tariffs on imported Chinese goods. It would also put pressure on other members of the World Trade Organization (WTO), including the United States, to grant MES to China.

Whatever decision the EU makes, debate on China and MES will continue around the globe. Many experts think that in December 2016, 15 years after China joined the WTO, the country must be granted MES by all members; other experts disagree.

Is China a market economy? / MES is WTO legalese. The content and conditions of MES are defined by each member country’s domestic legislation—or by the EU government in the case of EU countries. In the EU as in the United States, the criteria for granting MES are vague. In American law, a nonmarket economy is defined in a way that leaves much room for interpretation; characteristics to be considered include “such other factors as the administering authority considers appropriate.”

We can consider market status from an economic, as opposed to a political, point of view: is China a market economy? On first glance, it seems it could only be labeled as such using an elastic or wishful definition of market economy. But then, any currently recognized “market economy” is a mix of economic freedom and government direction. The recognition of a country as a market economy remains a matter of degree over many dimensions. So it is difficult to determine whether one country fits in the category or not.

If we use the major indices of economic freedom, which rely on different indicators to calculate a score for each country, we find that China ranks quite far down the list. The Fraser Institute’s Economic Freedom of the World: 2015 Annual Report has China in the lower part of the third quartile, which means that nearly three-fourths of the 157 ranked countries enjoy more economic freedom. Similarly, the Heritage Foundation’s 2015 Index of Economic Freedom ranks China near the bottom of the fourth quintile, whose members are considered to have “mostly unfree” economies.

In the near past, China did show some promise of becoming more of a market economy, as Ronald Coase and Ning Wang argued in their 2013 book How China Became Capitalist (Palgrave Macmillan; reviewed in the Winter 2011–2012 issue). But recent developments have not been encouraging. State banks and state enterprises remain big and incestuous players in a highly regulated economy. Censorship is on the rise. A welcome crackdown on corruption may transform into an excuse to bully businessmen. Crony capitalism still characterizes most of the Chinese economy.

Yet, the U.S. government’s opposition to MES for China is motivated largely by protectionism, not concern about economic liberty. Like many national governments in Europe, the U.S. government is responding to demands from domestic business and union lobbies that fear competition from Chinese producers. (See “Protectionism by Any Other Name,” Fall 2013.) Trade disputes often are exercises in crony capitalism, the cronyism being a matter of degree. Protectionism is further fueled by politicians’ populist appeals, which have been especially abundant this election year.

What about the United States? / Since market economy status is largely a matter of degree, we may ask just how much the United States merits MES.

Returning to the indices, the Fraser Institute’s ranking is based on five general factors that decompose into 42 distinct indicators. The five areas, which are given equal weights, are: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation of credit markets, labor markets, and general business. In the free-trade category, America ranks 74th among the 157 countries—better than China’s 109th, but hardly freedom’s paradise.

According to Fraser, American economic freedom has been declining since 2000. On average, so have other OECD countries’ scores, but the United States has dropped at a three-times-faster rate. The American retreat from economic freedom is due mainly to less freedom to trade internationally, more regulation, and less protection of property rights. If we consider its total index score from 1970 to 2000, the United States generally ranked as the most economically free country after Hong Kong and Singapore. It has now fallen to the 16th spot.

America occupies 12th place on the Heritage index, after such countries as New Zealand and Switzerland, but also Canada and Denmark. The 76.2 score (on a possible maximum of 100) that produces this ranking pulls the country down from the “free” first quintile to the “mostly free” second quintile. The United States dropped out of the “free” quintile in 2010; it is a market economy only to a certain degree.

Another interesting observation: over the three decades in which we have data from China in the Fraser index, its economic freedom has increased by 67.1 percent. Over that same time, the United States has fallen by 2.4 percent.

Whether to grant MES to China is a political issue tainted by protectionist interests. To its credit, the European Union seems to be trying to pull away from such protectionism, but it is mainly because European politicians long for Chinese foreign investment. As for America, it used to be the beacon of liberty, but its light is dimming.