On October 4, in an eagerly anticipated speech, United States Trade Representative (USTR) Katherine Tai unveiled the outlines of the Biden administration’s “new approach” on U.S.-China trade and tariff policy. The speech was preceded by a months-long, USTR-led interagency review of China trade policy – the first such China policy review in a decade-and-half. Truth be told however, the “new approach” is not terribly different from that of the previous administration’s agenda. Despite castigating the Trump team’s failure to “meaningfully address the fundamental concerns that [Washington has] with China’s trade practices and their harmful impacts on the U.S. economy,” USTR Tai’s approach by-and-large sticks to the failed “paradigm” of her predecessor’s approach. Just as before, tariffs are to be leveraged to elicit changes in China’s behavior (despite ample evidence of the self-defeating nature of Trump’s Section 301 tariffs). Unilateralism is not jettisoned, but is to be leavened with a more “allies first” approach. And just as before, adherence to multilateral trade law is to be approached with an a la carte attitude – picked, chosen and harped upon when convenient to American economic interests; kicked into the long grass when politically inconvenient.
In her remarks, USTR Katherine Tai made a number of overarching points.
First, the Biden administration does not seek to decouple from China. Decoupling is unrealistic and not in the U.S.’ interest. The U.S.-China economic debate was framed rather as the terms on which the two economies should be ‘recoupled,’ In the next breath however, she expressed skepticism of China’s willingness to make the necessary structural changes to its trade and industrial policy regime in order to satisfy Washington. “Beijing has doubled down on its state-centered economic system … [and] that China’s plans do not include meaningful reforms,” she noted. USTR Tai’s view is not an uncommon one in Washington, D.C. At the same time, the view fails to square with the reality that China has concluded negotiations with the European Union on a high-quality Comprehensive Agreement on Investment (CAI), and has submitted its candidature for membership to the gold-standard Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement. The CAI and CPTPP are indicators of China’s reformist inclination, not an indicator to the contrary.
Next, USTR Katherine Tai remarked that the Biden administration’s trade and tariff policy vis-à-vis China, as well as other trading partners, was a component of the administration’s broader economic agenda. What was best for American workers and interests would dictate her trade policy agenda. Presumably, concerted attention to trade and tariff policy will take a relative backseat until the administration’s infrastructure-building, competitiveness and worker training agenda - ‘investments’ that are included in President Biden’s Build Back Better plan - has been put into motion. Concerningly, USTR Tai did not rule out the use of trade protectionism as a means to advance the interests of American workers. Pockets of the workforce are likely to benefit, after all, from trade protectionism in the short term, though it is at the expense of the larger populace.
Third, and staying with the earlier point, USTR Tai observed that her foremost trade policy priority going forward would be to focus on trade enforcement. “Above all else, we must defend – to the hilt – our economic interests … [and] be prepared to deploy all [trade enforcement] tools and explore the development of new ones,” she intoned. There was nary a mention of the words ‘regional and multilateral liberalization’ in her speech, however. Trade enforcement is a safe option to back; nobody is ever against it. But without trade enforcement being married to a meaningful trade liberalization strategy, it essentially amounts to a ‘one-step-forward-two-steps-back’ policy of soft protectionism.
Finally, in order to elicit – or rather coerce – meaningful reform out of China, the U.S. intends to work closely with its European allies and like-minded partners to build a “truly fair international trade [regime] that enables healthy competition.” This comports with the overall a la carte ‘Allies First’ approach of the Biden administration contrasted with the Trump administration's ‘America First’ philosophy. Left unsaid by USTR Tai however was an elaboration of how the gap between the two sides’ views on trade and economic matters with China would be managed. The EU and Japan wish to tether China’s industrial subsidies and state-owned enterprises-related structural reforms to multilateral rulemaking. The U.S. on the other hand, would much prefer that these disciplines are imposed and enforced within a narrower bilateral, trilateral or small group setting.
In addition to these points, USTR Tai touched on a number of more immediate trade and tariff policy challenges concerning Beijing. These include the future of the Phase One trade agreement, negotiations towards a Phase Two ‘structural’ issues agreement, readjustment of the existing Section 301 tariffs, and the format and ‘architecture’ of USTR’s engagement with Chinese counterparts. On each of these points, USTR Tai left more unsaid than said, and to the extent that clarity was in fact provided, it resembled an approach more in common with her predecessor Robert Lighthizer’s criticized approach towards China than a new or original game plan. There are deep apprehensions within U.S. business, in fact, that some of the Section 301 tariffs on China might become permanent. This would be economically harmful to consumers and deeply damaging to the bilateral trading relationship from a longer-term perspective. It would also reinforce the U.S.’ less-than-stellar compliance with multilateral trade law. In September 2020, an arbitral panel constituted under the World Trade Organization’s dispute settlement system had ruled the Section 301 measures at issue had violated the U.S.’ treaty obligations under the General Agreement on Tariffs and Trade (GATT) 1994. The measures were to be rescinded, not reiterated.
As USTR Katherine Tai engages her Chinese counterparts in the weeks and months ahead, the administration’s trade and investment strategy is expected to become clearer. If the “durable coexistence” that USTR Tai alluded to in her delivered remarks is to take hold within the U.S.-China trading relationship however, a far more positive and purposeful “new approach” that breaks with the old will have to be summoned by her.