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Biden’s long-awaited China policy ‘no dramatic shift’ from Trump era

US Trade Representative Katherine Tai has for the first time set out the Biden administration’s “new approach” to trade with China, though experts suggest the strategy largely maintains policies introduced during the Trump era.

In a speech in Washington DC this week, Tai unveiled the administration’s long-awaited strategy after a comprehensive “top-to-bottom” review by the White House in recent months.

Tai said the US does not want to “inflame” relations with China, but spoke about the need to defend America’s economic interests “to the hilt”.

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She vowed to hold “frank conversations” with her counterpart, Chinese vice premier Liu He, over the progress of the phase one agreement signed during President Trump’s term in office.

Tai also announced Trump-era tariff exclusions would be reintroduced, potentially covering billions of dollars’ worth of goods, and that the US would seek to use the “full range of tools” available to combat China’s non-market trade practices, such as subsidies for state-owned enterprises.

“Finally and critically, we will continue to work with allies to shape the rules for fair trade in the 21st century, and facilitate a race to the top for market economies and democracies,” Tai said.

Businesses had been clamouring for the Biden administration to lay out a new US-China trade policy. In early September, Charles Freeman, the senior vice president for Asia at the US Chamber of Commerce, said to the New York Times there has been “frustration for the business community at the lack of concrete China economic policy”.

But others have already voiced their displeasure at the agreement, particularly on the issue of tariffs, and analysis from law firm Mayer Brown says the new strategy looks to “build on many of the trade policies of the Trump administration rather than depart significantly from them”.

 

Tariffs

Following Tai’s speech, some in the US business sector were hugely critical of the White House’s decision to maintain a key element of former President Trump’s China trade policy – tariffs.

“[The] long-awaited announcement proved the Biden administration’s trade strategy on China to be lacklustre at most, and will further inflict unnecessary damage to the American economy and retail supply chains,” says David French, senior vice president of government relations at the National Retail Federation.

He adds the tariffs would only add to challenges for US retailers grappling with the economic effects of the Covid-19 pandemic, and ultimately force consumers to pay higher prices.

Law firm Crowell and Moring, in an analysis of Tai’s speech, says Tai has shown “little indication” that the Section 301 tariffs targeting the vast majority of Chinese imports will be removed.

Chad Brown, senior fellow at the Peterson Institute for International Economics (PIIE), says those tariffs cover an estimated US$135bn of imports of intermediate inputs from China alone.

There are even suggestions the Biden administration could ramp up levies on imports from China in the future.

Andy Shoyer, a partner at law firm Sidley Austin, tells GTR that Tai “has been very clear that she is not getting rid of any of the tools that the Trump administration left on the table”.

“For example we saw the initiation of a new section 232 investigation on high-tech batteries,” he says. “It could also look to use the section 301 safeguard mechanism”.

Tai has offered some relief for American businesses, however, pledging to restart tariff exclusions that were introduced under Trump but expired in December – though Crowell and Moring says details are thin on the scope and timing of these plans.

 

Sticking with phase one

In another sign the Biden administration will stick to the status quo on China trade policy, Tai pledged to continue enforcing Trump’s so-called “phase one” trade deal.

The deal, signed in early 2020 – and hailed by President Trump as the “biggest deal anybody has ever seen” – put in place various obligations on China around product purchases and intellectual property right enforcement, and improved market access for the agriculture and financial services sectors.

The agreement has “stabilised the market, especially for US agricultural exports”, Tai says. “But our analysis indicates that while commitments in certain areas have been met… there have also been shortfalls in others.

“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 US economy.”

PIIE’s Brown says the speech shows the Biden administration has – after evaluating President Donald Trump’s trade legacy – decided to continue holding China’s “feet to the fire” on the phase one deal.

“Anyone looking for a dramatic policy change toward China from the last administration will not find any evidence of it,” he adds.

Brown estimates in analysis released this week that, as of August 2021, China has only bought about 61% of the US goods that it was expected to by this stage in the deal.

“Put differently, China is cumulatively about US$107bn behind in its expected purchases of US goods so far,” he says.

US manufacturing exports such as aircraft and vehicles make up 70% of covered goods, Brown says, but sales in this sector through August 2021 are only at 59% of the pro-rated target.

When the initial product purchase commitment period draws to a close at the end of 2021, it is unclear whether the Biden administration will seek to enforce similar obligations outlined in the agreement from 2022 to 2025. Tai said the language for these commitments is less “specific”.

Nonetheless, PIIE’s Brown suggests that Tai showed no indication she would pursue the “phase two” agreement that Trump envisioned would cover issues such as state subsidies.

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