U.S. extends an ‘olive branch’ to China on trade

“The most important element [of Tai’s speech] is the resumption of engagement with the Chinese, and that is long overdue, because we have a trade agreement that expires at the end of this year [Phase One agreement]”Wendy Cutler, former US Assistant Trade Representative for Japan, Korea and APEC Affairs in the George W. Bush administration, told POLITICO. “Ambassador Tai hit a realistic tone with which she did not expect much [from the Chinese] and leaves its options open to react, and not necessarily unilaterally, but together with allies and partners. “

The long-awaited speech marks the keystone of an eight-month review of former President Donald Trump’s trade policy towards China and sets the tone for President Joe Biden’s plans to push Beijing on tariffs, trade commitments and other bilateral economic issues. Tai confirmed that the US will resume talks with China for failure to comply with the terms of the US-China Phase 1 trade agreement implemented in January.

The Biden administration will also maintain the tariffs Trump imposed on more than $ 350 billion worth of Chinese goods, warning that additional tariffs or other trade restrictions could follow if China fails to address US concerns. Recognizing the domestic economic pain some of the tariffs are causing, Tai also announced that the US will reopen an exemption process for certain companies in order to seek exemption from tariffs against China. That was a key question from American firms, who say tariffs are driving up costs for manufacturers and consumers, especially if tariffs are not lifted in the near future.

Cutler predicted a quick follow-up to Tai’s speech by USTR to demonstrate tangible progress justifying the Biden administration’s reintegration policies. This progress could be within days in the Federal Register a new customs exemption procedure. “Hopefully we’ll wake up one morning and hear that [Tai] had a productive discussion with Liu He, ”said Cutler, who is also vice president of the Asia Society Policy Institute.

Tai’s harsh speech, including a reference to “harmful effects” from Chinese trade practices and the USTR’s intention to continue Trump tariffs, was a vital domestic message in order to avoid potential criticism from China hawks in both the GOP and the Democratic Party to weaken, the USTR introduced unconditional reintegration into China. “Maintaining and enforcing the Phase One agreement will be largely acceptable to both sides of the aisle,” said Kelly Ann Shaw, a former Trump senior commercial advisor and partner at global law firm Hogan Lovells. “You won’t be able to please everyone, but I think so [Tai] broke a reasonable balance in the middle. “

Shaw’s assessment is not unanimous, with at least one GOP lawmaker criticizing both the length of the USTR review and the perceived lack of detail in the results.

“Unfortunately, it took eight months for the government to announce its approach to trade policy with China, only that the USTR did not provide any specific information about its plans,” said Michael McCaul (R-Texas), a senior member of the MP House Foreign Affairs Committee. “They recognized that China does not want to reform and has no reform plans and its industrial policy is zero sums and the negotiations have been unsuccessful…. [but] Tai has not set out how to enforce China’s existing trade commitments, other than that it is nearly impossible to enforce commitments both at the WTO and bilaterally.

Tai stressed that despite the deep disagreement between the US and China over trade, the ultimate goal of the Biden government is to establish a bilateral “permanent coexistence” defined by dialogue. Tai said the Biden government would seek meaningful change in China through “open discussions” with its Chinese counterparts and would “engage directly with China on its industrial policy.” This message seems to be aimed at differentiating the approach of the Biden administration from that of the Trump administration.

“[Tai] wasn’t out to argue with them, ”said Simon Lester, president of China Trade Monitor, a company that analyzes China’s international economic relations. “There have been a few critical comments, but certainly not in the way we saw from the previous administration.”

Tai’s speech went beyond China to highlight the need for the US to work closely with allies in coordinating China’s trade policy. The European Union is steaming over Biden’s retention of the 2018 Trump-era steel and aluminum tariffs with the highly questionable reasons they had to protect “National security.” But Tai’s reference to working with the EU to address “market distortions and other unfair trade practices” suggested a rhetorical placeholder for future US-EU trade talks on such disagreements.

The Chinese government has yet to respond to Tai’s speech. Trade experts, however, expect minimal grumbling about Tai’s criticism over the possibility of removing a major thorn from a bilateral relationship that would otherwise be bracketed with resentment.

“Trade used to be the thesis” [of the U.S.-China relationship]but it is a minor issue now, as it is being used for military exercises on Taiwan, forced labor and treatment of Uyghurs, ”Shaw said. “There are many other variables that I think China is more responsive to than [trade] at the moment.”

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