Washington still searching for a China trade policy

Author: William Reinsch, CSIS

CSIS in Washinton was privileged on 4 October to host US Trade Representative (USTR) Katherine Tai as she explained the Biden administration’s trade policy on China. We learned that Ambassador Tai has lots of tools for dealing with China — none of which she specified — and that how she proceeds will be influenced by how future discussions with her Chinese counterpart, presumably Vice Premier Liu He, proceed. The first of those occurred four days later. Ambassador Tai announced that the tariff exclusion process would resume, which it did via a USTR announcement the next day.

As for her speech, judging from the Twitterverse, most listeners were left confused. She seemed to be saying simultaneously that the United States was going to continue to press China on its non-market policies that hurt US companies and workers but that she doesn’t have great hopes for success in persuading the Chinese to change policies. That leads to the obvious question, which she did not answer — why is it embarking on a path that it does not expect to succeed?

My conclusion is that the administration’s policy, at least in the short term, will seek to enforce former US president Donald Trump’s phase one deal. This is ironic, since the question that’s asked most about the administration’s China policy is how it is different from Trump’s. The answer now appears to be not very much.

Ambassador Tai alluded to a number of areas where China had not met its phase one commitments, although she declined to name any particular ones. Friends in the business community tell me that the two biggest specific commitments that remain unmet are disputes over polysilicon and US credit card companies operating in China. And, of course, Chinese purchases of US products clearly lag behind their commitments. Since they have until the end of the year to meet their obligations, it is a bit early to announce their failure, although in some sectors, like energy, it appears impossible for them to catch up. In others, particularly agriculture, they will come closer.

There is plenty to talk about with Liu He, but the important issues like subsidies, forced technology transfer, intellectual property theft and favourable treatment for state-owned enterprises remain unaddressed. Ambassador Tai’s answer to that remains the best one — the administration is engaged in making the United States ‘run faster’ to better compete with China, not so much there but in third markets around the world where the playing field is more level.

At the same time, the United States has an important role to play in defending the rules-based trading system. China, having signed up to the rules in joining the World Trade Organization, is fair game when it cheats. The administration is also under pressure from both parties in Congress to take a hard line on China. Eventually it will have to come up with more than it has so far on the so-called ‘phase two’ issues.

That also raises the larger question of the US approach to trade in the Indo-Pacific region. Most observers here agree that the best policy would be to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The Biden administration continues to resist that, largely on political grounds, but they are fighting the last war. There was substantial opposition to it in 2016 from the Democratic left, but as US relations with China have steadily worsened over the past five years, the politics have changed. Former US president Barack Obama’s argument for the Trans-Pacific Partnership (TPP) — now the CPTPP — has gained traction as a counterweight to Chinese influence.

Conveniently, there is a time-tested strategy for Democrats and trade agreements, employed by former US President Bill Clinton with NAFTA, Obama with the Korea–United States Free Trade Agreement (KORUS), and US Speaker of the House Nancy Pelosi with the United States–Mexico–Canada Agreement (USMCA). First, you declare the existing agreement inadequate, as Biden has already with the CPTPP. Then, you announce you are going to fix it, have a negotiation and change something, and then you pronounce it fixed and join.

Administration officials are acutely aware that they have no trade policy for the region and that sending an aircraft carrier through the South China Sea every few months is really no substitute. The path described above is available for the CPTPP, and it is only a matter of time before the administration realises it and starts down that road.

A complicating…

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