Author: Editorial Board, ANU
Nine months into Biden’s presidency, it is becoming clear that the US government does not have its own trade policy. Former President Donald Trump’s import tariffs on Chinese goods remain in place, as does his Phase One trade deal with China outside established global trade rules. The WTO’s dispute settlement system is still unable to enforce its rules because the United States has blocked the appointment of appellate judges.
Devoid of new ideas, US Trade Representative Katherine Tai recently doubled down on China’s tariffs and the Phase One trade deal. As Gary Hufbauer writes in our first feature film this week, “Three-quarters of Tai’s actions are Lighthizer’s policies with softer edges and a smiling face.” The only new policy is protectionist Buy American measures that restrict US government procurement to domestic production. President Biden has taken that principle to heart and bought Trump’s “America First” trade policy.
The United States used tariffs and the threat of higher tariffs to force China into a bilateral trade deal, signed in January 2020. Japan was forced into a trade deal with the United States the year before under the threat of tariffs on cars. The Phase One trade deal between the United States and China moved the world’s two largest economies and trading nations resolutely toward managed trade, away from free trade.
Rather than opening new Chinese markets, the deal focused on an agreement for China to buy $380 billion worth of U.S. agricultural products, manufacturing and energy by the end of 2021 — ignoring competitors’ interests in China. market. Great powers like China and the United States rarely consider the consequences of their actions on smaller powers, even if they are allies. Purchase quotas of $80 million worth of U.S. agricultural commodities mean China will have to divert imports from other import suppliers. Collateral has dropped significantly for Australian producers, with the added insult of being on the receiving end of the most blatant economic coercion China has unleashed on any country to date. American vintners, barley and beef farmers and miners have pushed more competitive Australian producers into the Chinese market at the urging of the US and with deliberate Chinese complicity.
At the same time, senior officials such as Indo-Pacific Czar Kurt Campbell argue that the United States has backed its allies and partners who have been hurt by the trade diversion as a result of US-China managed trade. As James Curran points out, when asked how “an inherently bilateral agreement that disregards the multilateral implications of how those Chinese obligations are met,” and its emphasis on the well-being of allies and other market economies, USTR Tai had no answer. .
Coercion to trade against Australia is just one of the long list of Chinese trade practices that have troubled much of the global trading community. China’s industrial subsidies to state-owned companies distort markets and competition in China, and those distortions trickle down to international markets. Forced technology transfer is required from many foreign companies as the price to be paid to operate in the Chinese market. There are other non-market practices in China that anchor the Phase One trade deal with the United States.
It is true that China is not breaking any rules on some of these fronts, because they are areas where there are no international rules to break. Industrial subsidies and ubiquitous agricultural subsidies, for example, have both yet to be disciplined by international agreements.
The rules in the WTO have not kept pace with developments in modern trade and need to be updated. But the US’s embrace of managed trade with China and its approach to technology market-sharing and other trade with Europe (despite the inversion of Trump’s steel and aluminum tariffs there) is not the kind of leadership needed now.
Bilateral and regional agreements have attempted to fill the gap. Prominent among those agreements is the Trans-Pacific Partnership (TPP) for which the United States led negotiations before Trump rejected the deal on the first day of his presidency. The TPP was rescued with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which created new rules for international trade in areas where they were missing from the WTO and opened up new markets for its members. Strategically, it was intended to anchor the United States in Asia, lift trading standards and counter China’s economic influence.
In our second editorial this week, William Reinsch bluntly explains that US government officials are well aware that they have no trade policy for the region and that sending an aircraft carrier through the South China Sea every few months is really no substitute. .
The Biden administration’s nonexistent trade policy in China and the Indo-Pacific has been exposed by China’s bid to join the CPTPP. Japan (and Australia) led the formation of CPTPP with the remaining 11 members of the group in 2018 after the US left TPP, and kept the door open to the United States in the hopes that it would eventually return.
The Chinese government has considered its application to join the CPTPP long and carefully and seems well aware that membership would require major reforms – the chapter on state-owned enterprises was written precisely with China in mind and the soft deal on state-owned enterprises for Vietnam offers no equivalent promise for Beijing.
China’s application to join the CPTPP offers Australia and other members the opportunity to resolve their own issues with Beijing and participate in the major trade reforms of the day. Negotiations will take time, but are likely to be a beneficial process, and Chinese interest in the CPTPP could help the United States rejoin the pact.
Chinese negotiations with other CPTPP members ahead of US involvement is also an opportunity for Beijing to continue its reform agenda without heavy breathing and pushy attitudes from the Americans. And it would open a path to Chinese economic re-engagement with the United States, and a path to the Asia-Pacific Free Trade Zone—Beijing’s strategic response to the Obama administration’s early tendency toward the Pacific when it TPP idea launched.
As Reinsch points out, the tactical way forward for Washington is to declare the existing CPTPP agreement inadequate, as Biden has already done. It can then announce that it will fix it (although the 11 will be very reluctant to fix the absurd US intellectual property provisions in a CPTPP 2.0 version of the agreement). And it can go on to negotiate and change something, speak it out and join in. So much the better if China has been brought to the starting gate on the way to this conclusion.
A signal from the US of interest in rejoining its own agreement would be a start. Abolishing the punitive tariffs and undoing the managed trade arrangements the United States has with China while negotiating China’s market opening and reform would be welcomed across the region. That would help to productively lock the United States into the Asian economy.
Removing the blockage in the WTO dispute settlement system is an easier step and would be an important indication of good faith in and respect for the multilateral trading system that the United States can take immediately. Until then, criticizing Chinese practices and taking away Australian markets is hypocritical and will continue to ring hollow.
The editorial board of the EAF is based at the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.