US Needs Clearer China Policy to Tackle Unfair Subsidies, Tech Access, Former USTR Says

The U.S. needs to increase engagement with China to convince it to limit restrictions on foreign companies and to end unfair government subsidies, former U.S. Trade Representative Michael Froman said. Although Froman said he is “hopeful” the U.S. can secure these concessions through more trade negotiations, he also said the U.S. may need to focus more on its own industrial policy to remain technologically competitive with China.

The U.S. particularly needs to better address Chinese access to U.S. technology and Chinese investment in this country, said Froman, president of strategic growth for Mastercard. The administration is undergoing a review of China-related export controls to further restrict Chinese access to advanced technologies (see 2007220050) and has stepped up reviews of Chinese foreign direct investment (see 2009170017). “I think across the board we need to sit down and make it clear what we expect our Chinese policy to be in the future,” he said during a Sept. 25 event hosted by the Center for Strategic and International Studies.

Members of Congress have called for better industrial policies to support the U.S. technological sector as it competes with Chinese state-owned companies and subsidies (see 2009160046). Froman said that some new U.S. industrial policies may be needed but stressed many questions need to be answered before the administration and Congress can start down that path. “How much of it is about national security, and how much of it is about competitiveness?” he said. “To what degree is it just opening up other opportunities where the private sector can create alternatives to Chinese suppliers?”

Froman also said these industrial policies -- including potential federal funding and tax incentives -- will vary among sectors and industries. “This is all going to have to get sorted out,” he said. “There’s not going to be a one-size-fits-all answer.”

The U.S. needs certain Chinese concessions to pair with any potential changes to industrial policy, Froman said. If the U.S. and China continue trade negotiations, China may agree to address some of its unfair trade policies that have led to import substitutions, subsidies and restrictions on foreign companies, he said. “I’m hopeful that there could be progress on those issues, using whatever leverage we have,” Froman said. It helps, he added, that China realizes there is “broad” bipartisan consensus in the U.S. on these issues and growing consensus among U.S. allies, including Europe.

But Froman also said China has not fully committed to its promise to open its economy, which could further complicate its relationship with the U.S. and other major trading partners. “Much of our engagement with China over the last 20 years has been based on the assumption that they were on this inexorable path to greater openness … and I think we’ve all learned it has not been as fast or as linear as expected. And there’s been some backsliding,” he said. “I think over time, it’s that openness that will help alleviate the tension between China and the rest of the world.”