The United States is moving to confront China about trade, industrial policy
The United States is moving to confront China about trade, industrial policy

The United States is moving to confront China about trade, industrial policy

U.S. efforts to roll out in the coming months could include a new study of Beijing’s support for sectors it considers strategic, using Section 301 of the Trade Act, according to people familiar with political discussions.

Section 301 is a powerful tool that enables U.S. officials to highlight certain practices of a trading partner and take punitive action if they determine that such practices violate commercial laws. While the people did not cite potential targeted sectors, China has identified semiconductors, artificial intelligence, 5G wireless and electric vehicles as areas in which it seeks global leadership.

The White House is also emphasizing increased control over U.S. corporate investment in China, tighter export controls on sensitive technologies, and greater cooperation with European and Asian allies and partners on subsidies and other issues, these people said.

The approach is motivated by growing convictions in the Biden administration that former President Donald Trump’s tariff campaign against Chinese imports failed to persuade Beijing to compete fairly in international trade. The Office of the U.S. Trade Representative said in its annual political agenda on Tuesday that it is restructuring its China policy to confront Beijing’s non-market practices, but has not provided new details on specific measures.

“It is clear that existing trading tools need to be strengthened and new trading tools need to be forged,” the USTR said in a February 16 report to Congress.

The changes will allow President Biden, a Democrat, to distance himself from his Republican predecessor’s trade policy, which resulted in a “Phase 1” trade deal with China in 2020 and remains largely intact more than a year after Mr. Trump left office.

“We’re seeing increasing signs of their own distinctive approach,” said Scott Kennedy, senior adviser at the Center for Strategic and International Studies, from White House officials.

While the administration has been considering a potential new 301 case for some time, the new initiative comes as efforts to build on the Phase 1 agreement have stalled, with senior US and Chinese officials no longer in close communication on trade , according to people close to both sides.

Russia’s invasion of Ukraine has become another source of tension with Beijing. In the weeks leading up to the invasion, China rejected U.S. warnings that Russian President Vladimir Putin was preparing an attack, saying instead that Washington raised fears of armed conflict.

Relations between the two countries eased with the signing of the trade agreement in 2020, but have since been soured over issues including the Covid-19 pandemic, Taiwan and China’s repression of Muslim ethnic groups.

In terms of trade, Chinese leaders are frustrated that Washington has largely left Trump-era tariffs in place, while expanding the list of Chinese technology companies blacklisted for their alleged support for China’s military and Beijing’s mass surveillance of Muslims and other ethnic groups.

A new 301 inquiry could have serious consequences, according to some Chinese officials and government advisers, who say China may respond with its own retaliatory measures – including adding U.S. companies to its list of “unreliable entities” that prevent them from the Chinese market.

“Hundreds of Chinese companies are on the US government’s unit list these days,” said a government adviser in Beijing. “But China has refrained from putting any U.S. companies on its unit list. That, of course, could change.”

Chinese President Xi Jinping’s priority in the coming months is to ensure a smooth transition to a tradition-breaking third term in power. He does not want relations with Washington to be directly hostile, officials and advisers say, but has little motivation to compromise on key issues at the heart of strained bilateral ties, from China’s economic practices to human rights.

Despite signing the 2020 trade agreement, the Trump administration retained 25% tariffs on approximately $ 250 billion in Chinese imports and 7.5% tariffs on $ 120 billion in Chinese imports.

Mr. Biden has been exposed to increasing pressure from business groups representing companies that have to pay the import duties. “The current tariff policy … has not worked,” said Jon Gold, a spokesman for the National Retail Federation. “We have not seen an improvement.”

While a new Section 301 case could lead to revisions of Trump-era tariffs, trade experts say the Biden administration is unlikely to currently consider any major reduction given China’s failure to meet its purchase targets under the trade deal.

China bought 57% of U.S. goods and services it pledged to buy over a two-year period ending Dec. 31, according to an analysis by Chad Bown, a senior fellow at the Peterson Institute for International Economics.

“China has made every effort to work with the United States to implement the agreement despite the many challenges posed by the pandemic, the global economic recession and supply chain disruptions,” said Liu Pengyu, a spokesman for the Chinese Embassy in Washington.

The Biden administration has not yet responded to the purchase shortage, and Russia’s invasion of Ukraine has slowed its deliberations, say people familiar with political discussions.

“No doubt [the] The administration’s patience is running out, and they’re clearly considering a menu of options to address not only Phase 1 deficiencies, but also long-term structural concerns, “said Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber of Commerce. Commerce.

A new 301 study is likely to focus on China’s use of industrial subsidies to advance strategic domestic sectors, say people familiar with the administration’s considerations. The United States believes that such subsidies have undermined American companies and violated international trade rules.

In its February 16 report, the USTR addressed a particular issue with Beijing’s Made in China 2025 initiative, a 10-year plan to advance 10 strategic sectors, including advanced information technology, robotics and biopharmaceutical products.

Mr. Bown said a subsidy study would provide “a useful transparency exercise to explain to the world that this is what we are concerned about and that is what we need to negotiate so we can get better out of it.”

While Section 301 investigations usually lead to the imposition of tariffs, policy makers are now trying to come up with non-tariff measures if the United States decides to punish China for concerns about inflation, people familiar with the matter said.

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