United States Trade Representative Tai offers up position on steps needed to take with China

In remarks made yesterday at the Center for Strategic and International Studies, United States Trade Representative Katherine Tai provided details regarding the White House’s new approach to the United States-China bilateral trade relationship.

Tai made it clear in recent years, Beijing has doubled down on its stat-centered economic system.

“It is increasingly clear that China’s plans do not include meaningful reforms to address the concerns that have been shared by the United States and many other countries,” she said. “When it comes to our relationship with China, what’s best for American workers is growing the American economy to create more opportunity and more jobs with better wages here in the United States.”  

Tai explained that the trade-related focus, for the U.S., is to create a durable trade policy benefitting various stakeholder by rebuilding trust with its workers and also aligning its domestic and foreign priorities.

As for its approach to U.S.-China trade relations, she laid out a multi-pronged plan including:

• discussing with China its performance under the Phase One agreement, with China having made commitments that benefit certain American industries, including agriculture, it must enforce;
• starting a targeted tariff exclusion process, in which the U.S. ensures that the existing enforcement structure optimally serves its economic interests, while also being open to the potential for additional exclusion processes, as warranted; and
• noting that the U.S. has “serious concerns” with China’s state-centered and non-market trade policies, which were not addressed in the Phase One trade deal

“As we work to enforce the terms of Phase One, we will raise these broader policy concerns with Beijing,” she said. “And we will use the full range of tools we have and develop new tools as needed to defend American economic interests from harmful policies and practices.”

What’s more, Tai pointed out how Chinese leadership, in recent years, have continued to double-down in its state-centric economic model, which, in turn, led the Trump administration to take various steps, in the form of unilateral U.S. pressure, to change what Beijing was doing.

“It launched an investigation focused on China’s forced IP and technology transfer policies—longstanding and serious problems,” she said. “This led to substantial U.S. tariffs on imports from China—and retaliation by China.  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.”

As an example, she highlighted how U.S. steel companies lost global market share after China started building its own steel plants and widely expanded its production capacity, offering lower-priced steel and negatively impacting the U.S. and other regions.

And she also pointed to the agriculture and semiconductor sectors, too, with the former seeing more U.S. exports to China in recent years, but with market share decreasing and China taking steps to limit market access for U.S. agriculture producers that comes with financial implications. As for the latter, China is keen on being the global leader for semiconductor production by 2030 and has invested at least $150 billion on this effort.

“Those policies have reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based, democratic economies,” she said. “That is why we need to take a new, holistic, and pragmatic approach in our relationship with China that can actually further our strategic and economic objectives – for the near-term and the long-term. As our economic relationship with China evolves, so too must our tactics to defend our interests.  As the years go by, the stakes keep getting higher and boosting American competitiveness becomes all the more important. Our strategy must address these concerns, while also being flexible and agile to confront future challenges from China that may arise.”

In terms of what this all means for supply chain stakeholders, it is viewed as somewhat of a “wait and see” situation, according to various industry observers.

There are no shocking announcements [here],” said Paul Bingham, Director, IHS Markit Economics and Country Risk / Transportation Consulting. It is a carefully worded statement confirming what was expected regarding the Biden Administration bringing up with mainland China the performance under the Phase One Agreement and other unresolved bilateral trade issues. The pledge to work multi-laterally with other countries besides China on U.S. trade relationships is repeated, and referenced in a China trade relationship context.  As for meaningful changes for supply chain and logistics services providers and shippers, it remains to be seen what those might be. The targeted tariff exclusion process and the potential for additional tariff exclusions could help some shippers who are suffering today from the continued U.S. import tariffs (and related Chinese retaliatory tariffs) still in place. The scale of the products covered and timing of when those tariff exclusions may be approved will affect whether these are significant or not to shippers and supply chain and logistics services providers.”  

And Eric Oak, research director for global trade intelligence firm Panjva, observed that Tai’s comments are not unexpected.

“The Biden Administration has been fairly laid back on trade so far, saying that they need to get the house (i.e. domestic concerns) done first, as well as no TPA,” he said. “That’s why they are saying that there is no Phase Two in the works. Companies that use imported raw materials will always gripe about tariffs, and companies that compete with imports will push for them—that has really been one of the defining conflicts in American history. We will definitely look to track the exclusion lists again when they are published.”