On China Trade Strategy, A Blast from the Past?



Inu Manak | Cato Institute

In a highly anticipated speech by United States Trade Representative Katherine Tai outlining the Biden administration’s approach to China, trade policy watchers were left with more questions than answers. Under repeated requests for clarity, the administration has held firm that it was reviewing all actions taken by the Trump administration before laying out its own approach. Almost one year after the presidential election, however, the administration has little to show for all this reflection. In fact, the vision outlined in Tai’s speech this week was a repackaging of her predecessor’s approach—different in style but not in substance. For those looking for a definite signal on where U.S. trade policy towards China is going, this week’s announcement was a disappointment. But the fact that the Biden team has failed to articulate a clear policy may not be as bad as it seems. Instead, it provides an opening for a frank discussion on where things should go, if the administration is willing to listen.

Tai spelled out four efforts as “the starting point” for “realigning our trade policies with China.” The first is to enforce the Phase One deal negotiated under Trump, part of which included a number of commitments from China to purchase various American goods. As Chad Bown from the Peterson Institute for International Economics has comprehensively detailed, China has fallen short of those commitments. The second is to expand the exclusion process for U.S. businesses that have been impacted by the tariffs levied by the Trump administration, many of which are still in place. In fact, as Bown notes, “the United States retains tariffs imposed by President Trump covering over $135 billion—or 93 percent—of imports of intermediate inputs from China.” As my colleague Scott Lincicome has also detailed, these tariffs have hurt the U.S. economy, and have had little impact on the Chinese economy. Furthermore, the exclusion process has been fraught with challenges, including inconsistencies in documenting exclusion requests—a finding by the Government Accountability Office. Despite these problems, Tai seems to be embracing these Trump era policies fully, which is certainly a cause for concern.

The third effort outlined by Tai, to raise “broader policy concerns with Beijing” on its “state-centered and non-market trade practices,” acknowledges a missing piece of the original Phase One deal. The negotiations should have addressed longstanding complaints on China’s trade practices, but instead, the Trump administration took a mercantilist approach that seemed to rely on China’s state-centric model it claimed was the problem to begin with. Forcing Beijing to purchase American goods was never going to solve structural issues in China’s trade policy, but to get a quick win, Tai’s predecessor, Amb. Robert Lighthizer, settled for a deal that made it look like we were getting something from China, even if it wasn’t the exact thing we needed to get. Instead of calling Lighthizer’s deal a failure, however, Tai doubled down on the approach, saying during the Q&A: “I don’t think it’s fair to say that I’ve characterized the previous administration’s efforts as failed. What I would say is that that hasn’t gotten us to where we need to go.” But the Phase One deal did not get us “where we need to go” for two key reasons. First, it didn’t include a discussion on the most critical concerns, such as China’s state-owned enterprises. Second, (and perhaps most importantly), “the entire deal rested on China’s willingness to fulfill its commitments” and lacked an effective enforcement mechanism, as noted by my colleague Scott Lincicome. The structure of the deal essentially destined it to fail. That Tai shies away from calling this a failure is puzzling, but at the very least she has acknowledged that the deal did not achieve any progress on key outcomes of concern.

The final effort Tai outlines is to “to work with allies to shape the rules for fair trade in the 21st century.” Now, this sounds a whole lot warmer and fuzzier than anything Lighthizer would have said, but the remarks were missing details of how exactly we would engage with our allies on China. This is not necessarily a bad thing, as the United States and the European Union recently met under the auspices of the Transatlantic Trade and Technology Council to “coordinate approaches to key global technology, economic, and trade issues; and to deepen transatlantic trade and economic relations, basing policies on shared democratic values.” These discussions are still new, and there are still plenty of issues that need to be smoothed over with the EU (I’m looking at you Section 232 steel and aluminum tariffs!), but it is a good place to start. The key question is whether this engagement with allies will be genuine and collaborative, or if it will resort back to the bullying tactics played by the Trump administration. This change in tone could also simply be cover for protectionist actions on trade remedies, labor and environmental regulations, which would bode ill for repairing transatlantic ties. On this, we will have to wait and see.

While the United States tries to regain its footing again after four years of tumultuous trade policy by tweet, it is important for the trade policy community to get the conversation going again about pragmatic ways forward. This will not be easy, particularly when the rhetoric being used by the current administration so closely echoes that of the last. But we need to move beyond domestic signaling and worries about the midterm congressional elections and towards an honest discussion of how to preserve and strengthen a global trading system that includes China.

There are reasons for trepidation, however. The departure of Mark Wu, a senior advisor on China at USTR, is a significant loss on the China portfolio. And while trade wonks all made jokes on Twitter about Tai’s remark that she had not seen Chad Bown’s “scorecard” on China’s Phase One purchase commitments, this is a notable oversight. Tai must reach out to the trade community broadly—not just some Democratic interests. These discussions should also be grounded in evidence, not rhetoric. If the administration is truly committed to bringing the country back together, then it cannot simply dust off the previous administration’s policies and repackage them as their own. Tai’s speech wasn’t the final word on U.S. trade policy towards China, but if the administration fails to engage with allies and experts soon, we risk a continuation of the unsuccessful unilateralism of the Trump years.

Inu Manak is a research fellow at the Cato Institute. She is an expert in international political economy, with a specialization in international trade policy and law.

To read the full commentary from the Cato Institute, please click here.