On October 4, 2021, U.S. Trade Representative Katherine Tai announced during a speech at the Center for Strategic and International Studies in Washington, DC, that the United States would launch a new trade strategy toward China. Tai’s announcement follows a comprehensive, months-long review of U.S. trade policy toward China announced earlier this year by the Biden administration. We understand that a report on the review is forthcoming.
Initial elements of China’s new trade strategy
Tai highlighted four elements of the revised US approach:
The first element will involve a renewed diplomatic engagement with China to assess the state of bilateral trade relations and discuss China’s compliance with the “Phase One” trade agreement, which was signed by the Trump administration in January 2020 and entered into force on February 14, 2020. the same year. In his speech, Tai refrained from declaring that China was in violation of its commitments under the agreement to purchase a certain amount of US goods, possibly to provide diplomatic space for talks with China. . According to Tai, this renewed engagement with China, which is expected to take place between her and Chinese Vice Premier Liu He as well as at lower levels, will also involve “honest” discussions on “China-centric trade and industrial policies. ‘State’ of China.
A second element involves the initiation of a new, but narrowly limited, exclusionary review process for Section 301 tariffs on Chinese exports. The tariffs, implemented by the Trump administration under Section 301 of the 1974 Trade Act and expected to affect some $ 360 billion in annual trade, were rolled out in four installments between July 2018 and September 2019. In her speech, Tai said that a “The targeted exclusion process would allow US companies to request tariff exclusions for products not available in the United States, although she declined to provide details. The next day, the Office of the United States Trade Representative (“USTR”) officially launched a public consultation process, issuing a Federal Register notice inviting the public to comment on whether 549 previously extended Section 301 product exclusions. The USTR does not currently accept requests for new exclusions, nor does it consider extensions for the vast majority (over 75%) of product exclusions p recently granted, which have not been extended. For the 549 product exclusions that have been extended, the public comment period will be open from October 12 to December 1, 2021. [For more information on the Section 301 exclusion process, see our separate post here.]
The third element of the revised US approach will seek to address China’s “state-centric” trade policies and practices, including what the USTR views as trade-distorting industrial policies. These “structural issues” were not addressed in the phase one agreement. While Tai said these issues would be raised in the USTR’s talks with China, she did not engage in formal negotiations for a “phase two” agreement. In addition, Tai stressed that the United States would also consider using all available political tools – as well as creating new ones – to combat China’s non-market policies. While Tai did not provide any details on what tools could be used, which might keep his options open, this could potentially involve further US actions under Section 301, filing new disputes with the World Organization. (“WTO”), as well as working with Congress to legislate on new authorities under which the USTR can take action against China. The fact that Tai refused to announce the imposition of any major trade action against China during his speech suggests that further escalation of tensions in the US-China trade relationship is not imminent. While the US trade enforcement action against China is likely in the short term, it is unlikely to be as disruptive or sudden as the previous administration’s.
Finally, a fourth element of the new US strategy will focus on the willingness to work of allies and like-minded countries to resolve issues of mutual interest concerning China, and to shape the rules of fair trade to facilitate ” a race to the top ”for the market. savings. This will involve coordination with third countries through bilateral, multilateral and regional forums, including the G7, the G20, the US-EU Trade and Technology Council, the “Quad” (US- Japan-India-Australia), the Organization for Economic Co-operation and Development (“OECD”) and the WTO. In response to questions regarding the current status of the WTO, namely the partial paralysis of its dispute settlement function resulting from the refusal of the United States to accept appointments to the WTO Appellate Body under the administration, Tai expressed the Biden administration’s support for the organization and its reform, but pointed out that relying solely on WTO mechanisms to deal with China’s non-market policies has failed. been an effective approach in the past. Notably, Tai made no allusion to plans for major new trade talks in the Asia-Pacific region to counter China’s assertion in its attempt to adhere to regional trade pacts. When asked if the administration would consider joining the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (“CPTPP”) – which China recently asked to join and which succeeds the Trans-Pacific Partnership (“TPP” ) previously defended by the United States – Tai only said that the United States will continue to engage with partners to address common challenges.
Assessment of previous approaches suggested that a new strategy is needed
Tai set out the rationale for a new approach by describing what the US Trade Policy Review found to be shortcomings of previous approaches. She noted that following China’s accession to the WTO at the end of 2001, the United States took a two-track approach to resolving issues with China. First, in a high-level dialogue, the United States has regularly negotiated commitments that China, among others, will implement market reforms and expand market access for U.S. exports. She said that over time, however, it was becoming increasingly difficult to secure China’s commitments and follow-up on these issues under this approach. At the same time, the United States has also rigorously pursued China’s compliance with WTO obligations by filing disputes against China at the WTO, often in coordination with allies. While the United States has been successful in each of these disputes, she said, the results have been equally disappointing, as China would change quiet policies or regulations, but not the underlying non-trade practices that of real concern to US businesses and policymakers.
Tai said that in recent years, as China doubled down on its no-market policies, the Trump administration turned to unilateral tools, such as Section 301 of the 1974 Trade Act. This approach , which led to the imposition of US tariffs and Chinese trade retaliation culminated with the conclusion of the phase one agreement in January 2020. However, she said, although the agreement brought stability to the trade relations between the United States and China, it has not really addressed Chinese practices, and China continues to shape its economy through state industrial policies and massive subsidies. Tai noted that China’s policies affecting the global steel, agriculture, solar panel and semiconductor industries were particularly illustrative.
Based on this assessment of the results of previous approaches and the administration’s conclusion that “China is not reforming,” Tai said the Biden administration concluded that a new approach was needed to move forward. the strategic and economic objectives of the United States. In addition to the specific actions she described, Tai said this approach would emphasize dealing with China “from a position of strength” by first and foremost strengthening the competitiveness of the United States in the world. their country through investments in infrastructure, incentives to accelerate technological innovation, capital development, supply chain resilience initiatives and US purchasing policies. His remarks suggest that negotiating expanded market access for companies is not a top priority in the administration’s “worker-centered” trade policy.
Tai’s speech contained few additional details or specific timetables for the implementation of the United States’ new trade strategy towards China. The USTR reportedly intends to issue a detailed report in the coming weeks on the results of its comprehensive review of US trade policy toward China. In the meantime, U.S. companies with business interests in China should be on the lookout for upcoming announcements regarding the upcoming USTR exclusion process for Section 301 tariffs on Chinese exports, monitor the results of USTR’s engagement with China for signals that issues regarding specific industries may be raised and be ready for possible US trade actions against China – and possible Chinese government responses – short term.