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Biden administration keeps tariffs as Tai lays out China trade strategy

Talks planned with Beijing over its industrial policies

U.S. Trade Representative Katherine Tai laid out the Biden administration's trade strategy with China on Monday.
U.S. Trade Representative Katherine Tai laid out the Biden administration's trade strategy with China on Monday. (Sarah Silbiger/Getty Images file photo)

U.S. Trade Representative Katherine Tai sidestepped a question Monday on whether the Biden administration is considering a Section 301 trade enforcement investigation as it seeks to engage China on its industrial policies.

Tai outlined the administration’s China trade strategy in a speech at the Center for Strategic and International Studies in which she called for the U.S. to deal with Beijing’s failure to meet commitments under the U.S.-China Economic and Trade Agreement, better known as the phase one agreement, and on areas such as industrial policies not covered by the agreement.

“We continue to have serious concerns with China’s state-centered and nonmarket trade practices that were not addressed in the phase one deal. As we work to enforce the terms of phase one, we will raise these broader policy concerns with Beijing,” Tai told her audience. 

William Reinsch, who holds the center’s Scholl Chair in International Business, asked Tai about reports that the U.S. Trade Representative’s Office was considering a trade enforcement investigation under Section 301 of a 1974 trade law.  

“It depends,” replied Tai. “Section 301 is a trade enforcement tool. It is a very, very important tool. We will look at all available tools in addressing our concerns and ensuring that we are able to defend the interests of the American economy.”

But Tai also said she plans to talk soon with her Chinese counterpart about the trade deal that took effect Feb. 14, 2020, as well as other outstanding trade issues.

Reinsch also asked Tai if one goal of the future U.S. trade relationship with China involved increasing market access for U.S. businesses in China.

Tai said the drive for market access has to be tempered with experience regarding Beijing’s policies and practices.

“I think that part of the story of the U.S.-China trade relationship over these recent few decades has been about this thirst on the part of our business sector, in particular, for increased market access to China. In the business sector, I include our agriculture sector, obviously,” Tai replied.

New approach over market access

She said the traditional approach to market access may not be the model to follow.

“Is what we are looking for liberalized trade and just more trade, or are we looking for smarter and more resilient trade?” Tai said.  

As Tai readies for talks with China, the administration will keep in place tariffs levied on imported Chinese goods valued at $370 billion. Tai said the administration will start a “targeted” process to review requests from U.S. companies for exclusions from tariffs ranging from 7.5 percent to 25 percent on products they import from China.

The Trump administration imposed the tariffs under Section 301. China has retaliatory tariffs on U.S. goods valued around $130 billion.

Most exclusions granted by the Trump administration expired Dec. 31, 2020.

Gary Shapiro, CEO of the Consumer Technology Association, welcomed the announcement of the exclusion process, sought by affected industries and lawmakers from both parties since President Joe Biden took office. However, Shapiro said the action is not enough.

“While we appreciate the opportunity for a targeted tariff exclusion process, the Biden administration needs to put an end to tariffs that are hurting American businesses and consumers. Americans have paid more than  $90 billion in tariffs since the trade war began,” Shapiro said in a statement. 

Tai said she is mindful that the relationship between the U.S. and China can impact the entire world.

“I have said this before and I will continue to say it: The U.S.-China trade and economic relationship is one of profound consequence,” she said. “As the two largest economies in the world, how we relate to each other does not just affect our two countries. It impacts the entire world and billions of workers.”

China’s commitment in phase one to buy $200 billion more in U.S. goods than 2017 baselines will be one area of discussion. The commitment covers several categories of U.S. exports over calendar years 2020 and 2021.

The purchase obligations are scheduled to end on Dec. 31, 2021, although the agreement says China could continue $5 billion in purchases of agricultural goods beyond that date. There are targets for 2022 through 2025 in the agreement, but no obligation by Beijing to honor them.

Beijing is close to meeting its pledge for agricultural and seafood purchases, which fueled projections of record farm exports in fiscal years 2021 and 2022, but is far behind the goals set for energy and manufactured goods. 

Chad P. Bown of the Peterson Institute for International Economics, a research organization, has been tracking purchases. He estimates that through August 2021, China’s purchases of all covered products reached 69 percent of its commitment using Chinese customs data, or 62 percent using U.S. export data of the year-to-date target. The figures are higher for agricultural products. The institute found that through August, China bought 92 percent of such products using Chinese customs numbers, or 89 percent using U.S. export figures of the year-to-date target.

In addition to the purchase obligations, China agreed to strengthen intellectual property protections and to tackle other issues, such as no longer requiring holders of trade secrets to establish actual losses before they can seek criminal investigation into misappropriation of a trade secret.

Tai noted that the U.S. must continue to invest in areas that will strengthen the domestic economy while also working with international allies on strategies to address nonmarket economies, particularly China.

Her assessment comes after the USTR spent several months reviewing the agreement and talking with affected industries and workers.

“We have to make smart domestic investments to increase our own competitiveness. We must invest in research and development and clean energy technology, strengthen our manufacturing base, and incentivize companies to buy American up and down the supply chain,” Tai said.

“Finally and critically, we will continue to work with allies to shape the rules for fair trade in the 21st century, and facilitate a race to the top for market economies and democracies,” Tai added.

House Ways and Means Chairman Richard E. Neal, D-Mass., applauded the focus of Tai’s speech. Until her confirmation as U.S. trade representative, Tai was the chief trade counsel for Neal’s committee.

“China, over the years, has increasingly employed non-market and anti-competitive practices to the detriment of the global trading system,” Neal said in a statement.

“It is critical that we use all of our tools, and in some cases create new tools, to hold China accountable for its actions. In partnership with our allies around the world, we must make clear our commitment to democratic values and fair competition while also trying to pursue constructive engagement with Beijing,” he added.

Jake Colvin, president of the National Foreign Trade Council, said Tai’s proposed approach to engaging China was encouraging.

“What’s clear is that the Biden Administration recognizes that decoupling is not an option for the world’s two largest economies,” Colvin said in a statement. 

“The Biden administration has a real opportunity to work with key allies on a strategy to address shared concerns around national security, industrial subsidies, state owned enterprises and overcapacity while pulling back from ineffective unilateral tariffs that never provided the intended leverage,” he added.

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