The Biden Administration’s U.S.-China Trade Strategy: An Introduction

Abstract

  • On October 4, 2021, U.S. Trade Representative Katherine Tai revealed the Biden administration’s highly anticipated strategic plan on U.S.-China trade policy, which set an overarching goal of “building resilience and competitiveness” for businesses. American workers and the economy in general.
  • The plan outlines four steps to achieve this goal, but offers little detail on how the administration plans to implement the steps.
  • The lack of detail suggests that much of the administration’s trade strategy has yet to be decided and depends on the outcome of future talks between the US and China; the details he offers imply that the Biden administration will continue many of the Trump administration’s protectionist policies towards China.

introduction

On October 4, 2021, U.S. Trade Representative Katherine Tai announced the Biden administration’s long-awaited strategic plan on reformulating U.S.-China trade policy. The plan’s objective is to formulate a US-Chinese trade policy that strengthens “resilience and competitiveness – including with our allies and partners – by diversifying markets and limiting the impact of Beijing’s harmful practices.”

The plan outlines, in order, four steps that the Biden administration will take over the next few months:[1]

  • Review the “Phase One” trade deal originally negotiated under the Trump administration and “stress” that China maintains its end to the deal;
  • Restore a “targeted” section 301 tariff exclusion process;
  • Continue high-level discussions with China to address more and broader trade concerns; and
  • Work more closely with allies to counter China’s unfair trade practices.

While the plan outlines the steps, it provides few details on how the USTR and the Biden administration will implement them. This lack of specificity suggests that much of the Biden administration’s business strategy in China has yet to be decided and depends on the outcome of Steps 1 and 3. The specifics of the plan imply that the Biden administration will pursue a much of the Trump administration’s protectionist trade policy towards China.

Review phase one

The first step for the Biden administration in its initial trade strategy with China is to revisit the “Phase One” trade deal and “insist” that China abides by its terms in the deal. In 2018, the Trump administration imposed Section 301 tariffs on $ 360 billion in imports from China under the pretext of punishing China for its forcible transfer of technology and theft of intellectual property (PI ). These tariffs have since become known as “Chinese tariffs”. Subsequently, the United States and China entered into a phase one trade agreement, in which China agreed to reduce non-tariff barriers against American exports and reform some of its unfair practices (such as the theft of intellectual property) in exchange for the Trump administration cutting part of its Chinese tariffs. The deal also called for China to purchase $ 200 billion in additional goods and services (over 2017 levels) from the United States through the end of 2021. The plan does not specify what the Biden administration will do. if discussions on the phase 1 agreement fail; it simply notes the need to “emphasize” compliance with the agreement.

Ambassador Tai said the first phase is flawed as it focuses almost exclusively on stealing intellectual property from China, while failing to address industrial subsidies and China’s state-led approach. She also noted, however, that phase one is beneficial for certain sectors of the US economy, such as agriculture, as it increases market access. So it would make sense to pursue a phase two deal that builds on phase one provisions that help the U.S. economy, while shifting the focus to tackling unfair subsidies from China. Ambassador Tai, however, ruled out pursuing a phase two agreement.

Reopen the “targeted” tariff exclusions of article 301

The second step of administration is to reopen a process of “targeted” exclusions on China’s Section 301 tariffs. Through this process, US companies can request the USTR to exclude or exempt them from the tariff. payment of certain Chinese tariffs. The USTR assesses exclusion requests on a case-by-case basis using several criteria, including the availability of imports outside of China and the economic harm from tariffs. It is the primary vehicle used by American businesses to obtain tariff relief. From 2018 to 2020, however, the USTR rejected 46,000 claims (87%) out of 53,000 submitted.[2] The Government Accountability Office also found that the USTR did not document its internal process for granting tariff exclusions and was neither consistent nor transparent in the process.[3] The plan does not provide details of how the exclusion process will be different, only that the process will be reopened and possibly extended.

There is speculation that the USTR will conduct a new Section 301 investigation with a focus on China’s industrial practices and how they have harmed American businesses.[4] A new Section 301 investigation would allow the Biden administration to adjust current Chinese tariffs, keeping the ones it likes and removing the ones it doesn’t like. The new investigation could also simply lead to an increase in tariffs. Many hoped that the Biden administration would completely cancel Chinese tariffs. Rather, the reopening of the exclusion process and a new Section 301 investigation suggest that the Biden administration will pursue the Trump administration’s most important and damaging trade action. The White House and Ambassador Tai did not provide further details when they insisted on this issue.

Continue high-level discussions with China

The administration’s third step is to continue high-level trade talks with China that go beyond the phase one agreement and cover broader trade concerns. These future discussions will therefore depend on the outcome of the discussion on the phase one agreement. And it is at this stage that the administration will make more concrete decisions based on China’s response. Ambassador Tai noted that she would stress in Beijing that the United States would use all available tools to pursue its trade interests while declaring: “our aim is not to stir up trade tensions with China”.

Work more closely with allies

The administration’s fourth step is to work more closely with its allies to counter China’s unfair trade practices. Ambassador Tai cited the agreement between the United States and the European Union to suspend tariffs resulting from a dispute between Boeing and Airbus as an example of such cooperation. This example is flawed, however, because if the United States and the European Union were serious about fixing the problem, they would have canceled the tariffs rather than just suspending them. Beyond emphasizing the importance of this step, the ambassador provided few details.

One of the most effective ways for the United States to work with its allies is to take advantage of current trade agreements and seek new ones. Trade deals allow large economies such as the United States to shape regional trade in its favor, while also providing a platform to consolidate and integrate trade practices. This is especially true in the Indo-Pacific region, which has one of the most dynamic and increasingly influential economies in the world. There are currently two major Indo-Pacific trade agreements in force, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). China has officially applied to join CPTPP, despite being one of the original RCEP signatories. The United States, on the other hand, is not part of either. Ambassador Tai suggested that the Biden administration had little intention of joining the CPTPP, deeming it obsolete. She did not discuss pursuing another trade deal or joining RCEP.

Conclusion

The trade relationship between the United States and China is the most important in the world, as it has significant economic implications around the world. After a nine-month wait, the Biden administration finally released its strategic plan on US-China trade relations, but the vague plan provided little new information to US companies severely affected by the US-China trade war.

This vagueness of the plan implies that the strategy of the Biden administration will not be clear until after future trade talks between the United States and China. In the meantime, many of the protectionist trade policies initiated under the Trump administration will continue under President Biden.

[1] https://www.whitehouse.gov/briefing-room/press-briefings/2021/10/04/background-press-call-by-senior-administration-officials-on-the-administrations-trade-approach-to- China/ [2] https://www.gao.gov/products/gao-21-506 [3] Same [4] https://www.politico.com/newsletters/weekly-trade/2021/09/13/white-house-trial-balloons-new-china-tariffs-797563
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