The Biden administration’s new (old) China trade policy

By Claude Barfield

On Monday, US Trade Representative Katherine Tai gave a speech at the Center for Strategic and International Studies laying out “the starting point of [the] administration’s strategic vision for realigning our trade policy towards China.” Tai, a savvy, adroit trade lawyer and diplomat, was clearly ready for prime time — but her speech was not. After eight months of a “top to bottom” China policy review, Tai gave a mélange of updated Donald Trump administration policies with few actual details as to how President Joe Biden would get tough on China and, as he vowed to Congress, “stand up to unfair trade practices . . . like subsidies to state-owned enterprises and the theft of American technology and intellectual property.”

US Trade Representative Katherine Tai, via Reuters

The reviews over the past few days have been decidedly mixed, with even sympathetic organizations and analysts querying “where’s the beef?” High-tech companies and associations are divided: On one hand, they have applauded Tai’s commitment to restart trade talks, but on the other they remain wary of potential new restrictions on US-China trade and investment down the road if talks fail.

Within the confines of this blog space, here are my reactions.

“Trump Lite”

The most concrete policy announced Monday was a commitment to hold China to its promises under Trump’s so-called “Phase One” agreement — despite Biden’s strong criticism of this and other Trump trade policies during the presidential campaign. (The Wall Street Journal Editorial Board coined the Biden plan “Trump Lite.”) The Phase One agreement is managed trade at its most naked: Under its terms, the Chinese state agreed to import some $200 million in US agricultural and other goods. In effect, such state action has inevitably hurt US trading partners, particularly with regard to agricultural products such as soybeans, barley, and wheat.

When quizzed directly about how Phase-One-managed trade squared with attempting to work with trading partners against China, Tai ducked the question, instead riffing on her “pragmatic” approach to trade negotiations. At other points, she stated that in the past, “market access” goals had been overemphasized and needed to be replaced with “smarter” policies that fit the new “realities” of world trade. (The reality of “smart” policies apparently also includes continuing $370 billion in tariffs on Chinese goods.)

Phase Two contradictions

Moving beyond immediate Phase One goals, Tai affirmed the United States’ desire for new trade talks with China, but set this against a bleak outlook for any meaningful results. Under the Trump administration’s erratic agenda, “Phase Two” was a supposed deal based on fundamental US grievances with Beijing’s predatory state capitalism — namely subsidies, forced tech transfers, closed high-tech sectors, and intellectual property (IP) theft. Tai blamed Trump officials for failing to rein in China’s assault on the US economy, but admitted “it is increasingly clear that China’s plans do not include meaningful reforms.”

Despite this dismal assessment, Tai vowed to defend US economic interests with all the tools now available, and introduce new tools in the future. But significantly, she gave no hint as to what these policies might entail: greater inward and outward investment restrictions, more sweeping export controls, more and higher tariffs, or draconian IP theft retaliation? No answers. (In a further contradiction, Tai eschewed talk of “decoupling” in favor of what she called “recoupling” on US terms, a prospect clearly at odds with her bleak assessment of future trade talks with Beijing.)

The World Trade Organization

On final point on the World Trade Organization (WTO): Tai proudly pointed out that the US had won some 27 WTO cases against China. But she also admitted that the results did not change China’s predatory trade practices. This underscores the fact that WTO rules as presently written do not cover many of the issues that the US and other WTO members have with China. And since the WTO moves by a consensus-driven process in which Beijing has a veto, the outlook for WTO-wide reforms is dim.

Tai stated near the end of the session that the US needs to have a “really honest conversation with China.” At some point soon, the Biden administration should have a similarly honest conversation on China here at home.

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