11 Monday Apr 2022
Posted in (What's Left of) Our Economy
Meet the new U.S. China trade strategy. And now it’s all but official: Same as the old (Trump administation) China strategy. Further, as should be obvious to anyone with a realistic view of core U.S. interests when it comes to the People’s Republic, that’s decidedly great news for America.
Overlooked amid dramatic developments like the Ukraine war and surging inflation and Ketanji Jackson Brown winning a Supreme Court seat, U.S. Trade Representative (USTR) Katherine Tai revealed late last month that after years of dumping on the former President’s approach to the subject as unproductive and even counterproductive, Joe Biden has finally agreed that Donald Trump’s priorities on this front were right all along.
Specifically, rather than trying to change the predatory Chinese practices that for decades have victimized U.S. businesses and workers, Mr. Biden’s trade envoy indicated to Congress that this goal had become quixotic. So the administration would pivot to the eminently feasible aim of using tariffs both to punish Beijing’s offenses and eliminate the advantages created by its subsidies and intellecual property theft and investment blackmail and host of import barriers.
Not that Trump ever explicitly stated that reforming China was pointless. In fact, the Phase One trade agreement he signed with Beijing in January, 2020 committed the Chinese to dismantle numerous protectionist policies. But for two reasons it should have been clear that his administration’s emphasis lay elsewhere. The first was Trump’s relatively early resort to towering and sweeping tariffs. The second was the lopsidedly pro-U.S. nature of Phase One’s dispute-resolution system.
By securing China’s agreement to enforcement procedures that on a de facto basis enabled the United States to tariff China for Phase One violations much more aggressively than vice versa, and that greatly reduced the odds of retaliatory levies, Trump and his trade chief, Robert Lighthizer, signaled deep skepticism that China would verifiably comply with the deal.
Candidate Biden, however, faulted Phase One for failing to address Chinese trade predation, and once elected, told a leading pundit that he’d differ from Trump on the issue by pursuing policies “that actually produce progress on China’s abusive practices.”
Last October, Tai was still complaining that Trump’s deal “did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy,” and her office repeated the charge just two months ago in the administration’s annual Report to Congress On China’s WTO Compliance. In that survey, moreover, the trade office added, “China is an important trading partner, and every avenue for obtaining real change in its economic and trade regime must be utilized.”
But in testimony to Congress at the end of last month (see here and here), Tai reported that this goal had been dramatically modified – and probably in effect abandoned. She stated that after decades of negotiations (including during the Biden term), “real change remains elusive” aside from instances in which China’s compliance with its trade obligations “fit its own interests.”
Therefore, the Biden team had decided to “turn the page on the old playbook with China, which focused on changing its behavior. Instead, our strategy must expand beyond only pressing China for change and include vigorously defending our values and economic interests from the negative impacts of the PRC’s unfair economic policies and practices.”
In terms of day-to-day policy, Tai’s revelation doesn’t change much. As I – and many others have noted – the Biden administration had decided from the get-go to keep in place nearly every single dollar of the Trump tariffs (see the New York Times interview linked above), and continued – and in numerous cases expanded (see, e.g., here) – its predecessors’ sanctions and export controls targeting Chinese tech entities.
Instead, the new strategy’s impact will mainly be felt going forward. With the last two American presidents now having determined that handling the China economic challenge through diplomacy has been futile, their successors will face enormous difficulties returning to engagement-heavy strategies without unmistakable – and enduring – evidence of greatly improved Chinese behavior. That is, Trump’s focus on punishment and protection are here to stay for the foreseeable future. And indeed, forgetting about changing China through a “Phase Two” agreement, and concentrating trade-wise on shielding the U.S. economy from Beijing’s predation using Phase One’s de facto tariff-ing authority, are exactly the courses I recommended in the mid-2020 article linked above.
The only major remaining uncertainty in U.S. economic policy toward China entails how far the decoupling of the two economies will go. Tai said a week ago that the administration’s goals didn’t include “stopping trade or trade divorce.” But that’s a straw man. The real question entails how far economic disengagement will proceed. And given the administration’s aforementioned tariff and sanctions moves, and related objectives both of creating more secure supply chains in economically and strategically important industries, and boosting domestic manufacturing output through increasing government procurement of U.S.-made products and investments to improve the competitiveness of U.S.-based industry, the answer — encouragingly — seems “pretty darned far.”