Chinese Tariffs ‘Disrupted a Lot of People’s Lives,’ Testifies USTR Nominee

The Section 301 tariffs on Chinese imports “touched directly a lot of people and have disrupted a lot of people’s lives and livelihoods,” said Katherine Tai, President Joe Biden’s nominee for U.S. trade representative, at her Senate Finance Committee confirmation hearing Thursday. She was asked how, if confirmed, she would revise USTR's tariff exclusion decisions that critics during the Trump administration called inconsistent and lacking transparency. During the three-hour hearing, she didn’t say whether she favored keeping or eliminating the tariffs themselves.

Tai told Senate Finance Chairman Ron Wyden, D-Ore., she thinks tariffs can be an effective tool for USTR to remedy unfair trade practices, but that was in reply to Wyden’s question about Section 232 tariffs on steel and aluminum. No senators asked her directly about her views on the Section 301 tariffs on Chinese goods. Tai appeared to have broad bipartisan backing from senators who asked mostly friendly questions.

As House Ways and Means chief trade counsel the past few years, Tai became aware “of the many concerns that have arisen” with the tariff exclusions “process” under President Donald Trump, she told Sen. James Lankford, R-Okla., when he asked how she would make the exemptions more fair and predictable. All but the few categories of COVID-19-related exclusions expired Dec. 31, and those that remain are scheduled to lapse next month.

Reforming the Section 301 tariff exclusions would be “very high on my radar,” if confirmed, “in terms of assessing the process that’s in place for exclusions” and the “decision-making” on them, said Tai. “Transparency and predictability and due process are all critical to the way we want our government to function.” Though the legality of the tariff exclusions doesn't factor into any of the 3,500 complaints flooding the U.S. Court of International Trade to vacate Lists 3 and 4A tariffs, lawyers speculate more suits are to come challenging the wrongful denial of exclusion requests as arbitrary and capricious under the Administrative Procedure Act (see 2101260056).

Tai is “really eager to get in and have USTR do its part” in persuading importers that source goods from China to relocate production to the U.S., she told Sen. Todd Young, R-Ind. “In terms of USTR’s role, there are clearly trusted trade relationships that can be leveraged.”

The nominee hesitated when Young asked if she thought Robert Lighthizer, the last administration's USTR, adopted the “appropriate approach” toward the goal of “reshoring” manufacturing to the U.S. through the imposition of tariffs on Chinese imports. “I will have to think about it to give you my best answer,” she said. “With respect to Ambassador Lighthizer’s policies, there has been a lot of disruption and consternation that have accompanied some of those policies.” Tai’s aim as USTR would be to achieve “similar goals in a more effective, process-driven manner,” she said.

When Americans with their “economic traditions” study the Chinese economy, “what we see is an extremely formidable competitor,” Tai told Sen. Bob Casey, D-Pa., about her views of the China threat. “The state is able to conduct the economy almost like a conductor with an orchestra.” Americans, by comparison, “have been very trusting of the free market, of the invisible hand that Adam Smith described,” she said. Recent U.S. history with China “has taught us that we need to revisit how we conduct our economic activity, our coordination of our trade policies, not to become China, but how to be true to ourselves and our traditions, and be more strategic, knowing the quantity and the strategy that we are up against.”

U.S. trade policies “for a very long time” were based on the false “assumption” that “the more we traded with each other and the more liberalized our trade, there would be that rising tide that would lift all boats,” said Tai. The long-term trends instead have been "a race to the bottom,” through competition with “lower standards across the board,” she said. This needs to prompt a “rethink” of U.S. strategic trade policies “to figure out how trade policy can be conducted in a way that it does truly lift up all boats,” she said. Tai views China's use of forced labor as “probably the crudest example of the race to the bottom,” she said.

China has done “an incredible job of articulating its ambitions in its five-year plans and accomplishing a lot of the goals it has set for itself,” said Tai. Semiconductors, in short supply globally, “are just a part of what we have to compete with,” she said. “We can’t compete by doing some of the things China does” in subsidizing the revenue of Chinese chip companies to the tune of 20% to 40%, she said. “We have to figure out how we compete, marshaling all the tools and resources that we have in the U.S. government.”

The U.S. “can’t afford not to continue to be engaged as a leader” in the World Trade Organization, said Tai. “The WTO does need reform.” With the WTO now in its 26th year of existence, “we need to be having hard conversations in Geneva in a constructive way” about how well the organization is serving its members and what steps it should take to become more responsive, she said.

Tai knows “firsthand” how “critically important” it is for the U.S. to have “a strategic and coherent plan for holding China accountable to its promises and effectively competing with its model of state-directed economics,” she said in her opening statement. “China is simultaneously a rival, a trade partner and an outsized player whose cooperation we’ll also need to address certain global challenges. We must remember how to walk, chew gum and play chess at the same time.”