President Joe Biden and his team of trade negotiators have revealed their strategy to handle China on commerce: A blend of old and new. With the phase-one agreement reaching the two-year mark, the new administration is combing through the arrangement and determining its efficacy. But while talks are back on the table, the Chinese leadership is aiming to go big or go home. So, will the White House speak softly and carry a big stick or talk loudly and cave to the demands of Beijing?
US Targets China’s ‘Non-Market’ Policies
U.S. Trade Representative (USTR) Katherine Tai and Vice Premier Liu He held “frank” virtual talks on Oct. 8. America’s chief trade negotiator utilized the call to ascertain if bilateral engagement can resolve U.S. concerns regarding China’s trade and subsidy practices.
Ahead of the meeting, a senior USTR official noted Tai would be going through China’s performance in installing the phase-one provisions. One of the areas that Beijing ostensibly failed to adhere to the dollar amounts of promised acquisitions of U.S. goods. Moreover, Tai cited the nation’s “non-market” and “authoritarian state-centric” mechanisms. The USTR said in a statement:
“Ambassador Tai and Vice Premier Liu reviewed implementation of the U.S.-China Economic and Trade Agreement and agreed that the two sides would consult on certain outstanding issues.
We recognize that Beijing is increasingly explicit that it is doubling down on its authoritarian state-centric approach and is resistant to addressing our structural concerns. Therefore our primary focus will continue to be on building resilience and competitiveness, diversifying markets, and limiting the impact of Beijing’s harmful practices.”
The Xinhua state news agency reported China had sought to eliminate tariffs between the world’s two largest economies and agree to address their worries through extensive consultation. “Both sides agree to continue communicating with an equal approach and mutual respect, and to create the conditions for the healthy development of economic and trade relations between the two countries and the recovery of the world economy,” the foreign media outlet stated.
When pressed if the United States will employ a Section 301 probe that could trigger additional tariffs on Chinese goods, the USTR responded that the federal government would exploit a “full range of tools” to shield companies, farmers, and workers from unscrupulous trade standards.
Looking ahead, Tai will now conclude if these bilateral talks will “secure the outcomes” that the administration is searching for before establishing another deal. However, by now, former President Donald Trump wanted to enter into the second phase of the trade pact, so it remains unclear as to what the next stage will be between the two nations.
Phase One: An Update
The phase-one deal that was signed in January 2020 concentrated primarily on the sale of U.S. farm, manufacturing, and energy goods and services worth roughly $200 billion over two years. The agreement also included enhanced protections for copyright, trademarks, and intellectual property (IP). Two years later, what has happened?
Despite China ramping up purchases of American agricultural goods over the last 12 months, particularly soybean, it has fallen short of the outlined targets for manufactured and energy products, according to data compiled by the Peterson Institute for International Economics. Overall, China committed to buy more than $207 billion in U.S. goods this year. As of August 2021, this is where the numbers stand:
- Agriculture: $25.3 billion | 92% of target
- Manufacturing: $51.4 billion | 64% of target
- Energy: $12.6 billion | 56% of target
- Agriculture: $17.9 billion | 89% of target
- Manufacturing: $43.8 billion | 61% of target
- Energy: $8.9 billion | 42% of target
So, based on the missed thresholds, should both U.S. and China dismiss the Trump-era deal? The New York Federal Reserve Bank contends it focused on a broad array of “substantive issues” that were ignored for many years.
“The Phase One agreement covered a range of substantive issues in Chapters 1 through 5 that deserve more attention than the purchase targets in Chapter 6,” the central bank wrote in a Liberty Street Economics blog post. “Against this backdrop, the U.S. economy could experience considerable long-term benefits from close enforcement of commitments under the first five chapters of the agreement.”
Considering Katherine Tai’s recent indistinct speech, it is unclear what the Oval Office plans moving forward. Will the Biden administration seek multilateral coordination? Will the White House attempt to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)? Will the president pressure the World Trade Organization to rein in China’s shortcomings as the previous regime did? Whether the U.S. becomes a lone ranger or constructs a coalition of countries to tackle the Red Dragon, it appears that a Phase Two upgrade is not in the cards – or fortune cookies.
~ Read more from Andrew Moran.