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January 03, 2023

Is China Trade Policy Going to Change? [Joe Mannix]

During Q4, the US Trade Representative Katherine Tai delivered remarks on China on a couple of occasions. There was plenty of nonsense in her remarks, especially in her October address to the Center for Strategic and International Studies, but also some potentially interesting positioning.

On the nonsense side, she did lots of crowing about legislation that's going to stick it to China:

We already accomplished some of that work with the American Rescue Plan, the Administration's focus on supply chain resilience, and our investments in our technological leadership. The Administration is working closely with Congress to build on those actions with the Bipartisan Infrastructure Deal and the Build Back Better agenda.
This is, of course, nonsense. The mega-spending bills - with the possible (but unlikely) exception of the CHIPS act - will do precisely nothing to help the United States or harm China. If anything, you should invert that assessment. There's plenty of this kind of nonsense in the remarks, but if you set that to the side then there are two remaining points, and they may not be good for China.

First, she asserts that Biden is going to hold the line that Trump took and expand it. First, she talks about the "Phase One" deal and how it was good but didn't go far enough:

... Against this backdrop of rising tensions, in January 2020, the previous administration and China agreed to what is commonly referred to as the "Phase One Agreement."

This agreement includes a limited set of commitments. These cover China's obligations regarding intellectual property and technology transfer, purchases of American products, and improved market access for the agriculture and financial services sectors.

It has stabilized the market, especially for U.S. agricultural exports. But our analysis indicates that while commitments in certain areas have been met, and certain business interests have seen benefits, there have been shortfalls in others.

But the reality is, this agreement did not meaningfully address the fundamental concerns that we have with China's trade practices and their harmful impacts on the U.S. economy.

Interesting. This is the same thing that Trump said when he announced the Phase One agreement. Tai doesn't mention that, of course, and is giving Biden all the credit, but it is what it is. It was called "Phase One" for a reason: because Trump knew it was only the start.

So what will be coming down the pike? Tai talks about things for the future: tariffs and pressuring China over non-market trade policies. They plan to do this without "inflaming trade tensions with China:"

Beyond our domestic investments, in the coming days, I intend to have frank conversations with my counterpart in China.

That will include discussion over China's performance under the Phase One Agreement.

And we will also directly engage with China on its industrial policies. Our objective is not to inflame trade tensions with China.

But above all else, we must defend -- to the hilt -- our economic interests.

That means taking all steps necessary to protect ourselves against the waves of damage inflicted over the years through unfair competition. We need to be prepared to deploy all tools and explore the development of new ones, including through collaboration with other economies and countries. And we must chart a new course to change the trajectory of our bilateral trade dynamic.

She wrapped up her remarks by dismissing the work that Trump did (that she also asserts the Biden administration is building upon) and recommitting to multilateral activity in addition to bilateral pursuits:

The path we have been on did not take us there. President Biden's priorities that I've laid out today are aimed at achieving a shared prosperity that is good for our workers, producers, and businesses; good for our allies; and good for the global economy.

What I find interesting in this is that she didn't talk about standing down from Phase One. She did mention a "tariff exclusion process" that raises an eyebrow for me, because she also acknowledged the efficacy of tariffs in bringing China to the table during the Phase One negotiations. That's the whole "backdrop of rising tensions" thing in the excerpt above. The juxtaposition alone is pretty amusing: we don't want to inflame tensions, but inflamed tensions is what gave us an entry point in the first place.

She also spoke pretty frankly about the consequences of unfair Chinese trade on the domestic workforce and economy, though not as bluntly as she did in her in subsequent remarks to the Council on Foreign Relations a couple of weeks ago:

An important part of realizing our vision for human-centric trade is realigning our trade policies toward China, to defend the interests of America's workers, businesses, farmers, and producers.

The loss of jobs, income, and manufacturing capabilities that accompanied a surge in low-priced imports from China has been real and devastating. For too long, the PRC's unfair policies and practices undercut American prosperity, suppressed labor rights, and weakened environmental standards.

To vigorously defend our values and economic interests, we need a new playbook on China that serves our interests, and we will continue to press the PRC on its state-centered and non-market trade practices.

So what to make of all this? I don't know. It isn't clear because diplomats rarely are. I like the acknowledgment - in fairly direct terms - that the relationship with China has been harmful and attempts to solve problems with China's behavior prior to the Phase One agreement during the Trump administration were ineffective. I like the framing of all this as "we'll do what's good for America." Those are positives in my opinion.

But then there's the other side of the coin, which is the normal globalist line and discussion of exemptions for the tariff regime put in place under Phase One. If China has not committed to all of its obligations under Phase One - and it hasn't - then why are we talking about exempting tariff barriers in some cases? Does the implication that future activity will be more multilateral than bilateral imply that we will lose progress?

The timing is also interesting, in that these remarks were delivered during a US recession (and yes, there is one, despite official jawboning) and growing inventories, when China's industrial output is falling, when other Asian countries - especially Japan - are directly targeting China with their own policies and the various internal problems in China are becoming impossible to ignore. Is this policy leading the way, or policy bowing to existing reality?

I don't know. I strongly suspect that the meaning of all this is that our policy regarding trade with China is probably going to be unchanged in essence, with a couple of tweaks to satisfy some particular special interests. I would prefer to be wrong about that and we're going to go harder on China, but I think it's probably going to be status quo.

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posted by Open Blogger at 04:31 PM

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