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

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“The most important element [of Tai’s speech] is its reengagement with the Chinese and that’s long overdue because we have a trade agreement that is reaching an important juncture at the end of this year with the expiration of the [Phase One agreement],” Wendy Cutler, former assistant U.S. trade representative for Japan, Korea and APEC Affairs in the George W. Bush administration, told POLITICO. “Ambassador Tai struck a realistic chord that she’s not expecting a lot [from the Chinese] and is clearly leaving her options open on how to respond, and not necessarily unilaterally, but in concert with allies and partners.”

The long-anticipated speech is the capstone of an eight-month review of former President Donald Trump’s trade policies toward China and sets the tone for President Joe Biden’s plans to press Beijing on tariffs, trade commitments and other bilateral economic issues. Tai confirmed that the U.S. will restart talks with China on its failure to comply with conditions of the Phase One U.S.-China trade deal implemented in January.

The Biden administration will also maintain tariffs Trump imposed on more than $350 billion worth of Chinese goods and warned additional duties or other trade restrictions may follow if China does not address U.S. concerns. In a recognition of the domestic economic pain inflicted by some of the tariffs, Tai also announced that the U.S. will reopen an exemption process for certain companies to win relief from tariffs on China. That was a key ask of American firms who say the duties are driving up costs for manufacturers and consumers, particularly if no duties are lifted in the near future.

Cutler predicted quick follow-up on Tai’s speech by USTR in order to demonstrate tangible progress that justifies the Biden administration’s reengagement policy. That progress could include a notice within days in the Federal Register of a new tariff exemptions process. “Hopefully, we’ll wake up one morning and hear that [Tai] had had a productive discussion with Liu He,” said Cutler, who is also vice president of the Asia Society Policy Institute.

Tai’s tough talk, including a reference to “harmful impacts” from Chinese trade practices and USTR’s intention to continue the Trump tariffs, was essential domestic political messaging to mitigate potential criticism from China hawks in both the GOP and the Democratic Party that USTR was implementing an unconditional reengagement with China. “Keeping the Phase One agreement in place and enforcing it is something that is going to be broadly acceptable to both sides of the aisle,” said Kelly Ann Shaw, a former Trump senior trade adviser and partner at the global law firm Hogan Lovells. “You won’t be able to satisfy everyone, but I think that [Tai] did break a reasonable balance in the middle.”

Shaw’s assessment isn’t unanimous and at least one GOP lawmaker took issue with both the duration of USTR’s review and a perceived lack of detail in its results.

“It unfortunately took eight months for the administration to announce their approach to trade policy with China, only for the USTR to give no specific indication on what they plan to do,” said Rep. Michael McCaul (R-Texas), ranking member of the House Committee on Foreign Affairs. “They’ve acknowledged that China doesn’t want to reform and has no plans to reform, and its industrial policies are zero sum and negotiations have been unsuccessful …. [but] Tai didn’t lay out how she plans to enforce China’s existing commitments on trade, other than explaining it’s been nearly impossible to enforce commitments, both at the WTO or bilaterally.”

Tai emphasized that despite the deep disagreements between the U.S. and China on trade, the Biden administration’s ultimate goal was to establish a bilateral “durable co-existence” defined by dialogue. Tai said the Biden administration will seek meaningful change from China through “frank conversations” with her Chinese counterparts and to “directly engage with China” on its industrial policies. That messaging appears to be designed to differentiate the Biden administration’s approach from that of the Trump administration.

“[Tai] wasn’t out to pick a fight with them,” said Simon Lester, president of China Trade Monitor, a firm that provides analysis of China’s international economic relations. “There were a couple of critical comments but certainly not like what we saw from the previous administration.”

Tai’s speech reached beyond China to reference the need for the U.S. to work closely with allies in coordinating China trade policies. The European Union is steaming over Biden’s maintenance of Trump-era steel and aluminum tariffs imposed in 2018 on the highly questionable grounds that they were required to protect “national security.” But Tai’s reference to collaboration with the EU to address “market distortions and other unfair trade practices” suggested a rhetorical placeholder for future U.S.-EU trade discussions on such disagreements.

The Chinese government has yet to respond to Tai’s speech. But trade experts expect minimal grumbling about Tai’s criticism given the opportunity to remove one important thorn from a bilateral relationship otherwise bracketed with rancor.

“Trade used to be the thesis [of the U.S.-China relationship], but now it’s a subpoint in that you’ve got things happening with military exercises over Taiwan, forced labor and the treatment of the Uyghurs,” Shaw said. “There are a lot of other variables that I think China is more reactive to than [trade] right now.”