Few Specifics in China Policy in Tai Speech, Other Than Exclusion Applications Will Return

The rollout of the new China trade policy looks a lot like the old China policy, with a new chance at Section 301 exclusions and all the tariffs remaining for now. U.S. Trade Representative Katherine Tai suggested during the speech on the results of the China policy review that she doesn't have much hope for getting more structural reform that the phase one China agreement did not secure.

"In recent years, Beijing has doubled down on its state-centered economic system. It is increasingly clear that China’s plans do not include meaningful reforms to address the concerns that have been shared by the United States and many other countries," Tai said during a speech at the Center for Strategic and International Studies Oct 4. Still, she said, "Our objective is not to inflame trade tensions with China."

She pointed to China's heavily subsidized ramp-up of solar panel production, which drove many countries in the West out of business, and its ambitions to advance in semiconductors. "Those policies have reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based, democratic economies," she said.

In questions after her speech, Tai declined to say that the Trump administration approach had failed at its aims, and said that the talks she plans to have soon with Chinese negotiators would be on where China has not lived up to its commitments in the phase one agreement. When asked if the U.S. would do something "nice" for China if China did meet its purchase commitments by the end of the year, she sidestepped the question. She also did not say whether a second Section 301 investigation could follow if the U.S. is not satisfied with China's positions on industrial subsidies, but said that Section 301 is "a very important tool."

In a panel talk after the speech, reacting to the speech and Q&A, Anna Ashton, vice president of government affairs for the U.S.-China Business Council, said, "We’ve been waiting for nine months now to get the conclusions of this China policy only to have the conclusions be: We’re going to keep doing what we’ve been doing." Ashton said that Tai completely glossed over what the cost of the tariffs has been compared to their benefits.

Andy Rothman, an investment strategist at Matthews Asia, said, "The tariffs have not worked, full stop. It’s clear from studies done by everyone from the Fed to academic economists that Americans have been paying the tariffs." He noted that last year, the share of all imports that came from China was back to its highest level on record, so he asked why the administration would keep the tariffs.

Ian Johnson, a China fellow at the Council on Foreign Relations, said that he thinks if Tai had been the USTR four years ago, there wouldn't have been so many tariffs, but now, "You don’t want to give it away for nothing. I’m sure she’s got more up her sleeve and she can’t necessarily reveal it all at this time."

Ashton said that officials at the Office of the U.S. Trade Representative are telling USCBC in meetings that they don't agree with the entire tariff list, and they "might want to recalibrate."

In a telephone interview, Derek Scissors, a China expert at the American Enterprise Institute, also critiqued the speech as having no substance, but said those who think tariff removal is important for the American economy are wrong on the substance, and don't understand the politics. "Rolling back tariffs on China with no replacement is political suicide," he said, adding that nothing would energize a Trump campaign in 2024 more. He said that while there might be about $30 billion in costs to consumers from the Section 301 tariffs, that's tiny compared to all spending, and he said that inflation is more due to supply chain kinks and a surge in goods demand than the tariffs.

"No American consumer notices the tariffs," he said. "Certain companies notice the tariffs," Scissors said.

House Ways and Means Committee Chairman Richard Neal, D-Mass., praised the speech in a statement: "This morning, Ambassador Tai laid out a clear, comprehensive strategy for the U.S.-China trade relationship in a manner that supports U.S. workers while growing and strengthening the U.S. economy. China, over the years, has increasingly employed non-market and anti-competitive practices to the detriment of the global trading system. It is critical that we use all of our tools, and in some cases create new tools, to hold China accountable for its actions. In partnership with our allies around the world, we must make clear our commitment to democratic values and fair competition while also trying to pursue constructive engagement with Beijing. American products, workers, industry, and farmers will see the best results if our actions are thoughtful and deliberate, not reflexive and indiscriminate."

The only news from the speech was that exclusions would be allowed again, and Scissors said that's "completely trivial. We’re talking about a few hundreds of millions [dollars] affecting personal consumption of $16 trillion."

When asked during the Q&A what she would say to businesses that have said it is hard to find suppliers outside China, Tai replied, "We place a lot of weight on what we hear from our businesses, especially our small and medium businesses. That is certainly why we are restarting a tariff exclusion process."

Scissors said that while it's not critical for the Biden administration to take action on China yet, if you started another Section 301 investigation now, it would take until April or May to get results.

He said that Tai's acknowledgment that China is unlikely to change its practices calls for a totally different direction. "That is a perfectly reasonable observation, it’s probably true under [Chinese President] Xi Jinping," he said.

In Tai's speech, she said, "Our goal is to bring deliberative, stable, long-term thinking to our approach -- and to work through bilateral and multilateral channels. The core of our strategy is a commitment to ensuring we work with our allies to create fair and open markets."

After the speech, several asked why allies would want to work with us if the U.S. is leaning on China to meet its purchase commitments, since those commitments could take away sales from allies. She was also asked if the steel and aluminum tariffs on Europe would get in the way of coordination.

On the first question, Tai said that while the purchase commitments stabilized the commercial relationship, it is important to ask "whether or not this structure we have is effective in addressing the interests we have as an economy."

On the Section 232 tariffs, she expressed confidence that the European Union and the U.S. will be able to work through the tension as they did with the Airbus-Boeing dispute.

Scissors, who disdains the Section 232 tariffs, said that President Joe Biden is better than Donald Trump in not arguing that the trade deficit with Germany is almost as bad as the one with China. But he scoffed at the idea that Europe, Japan, South Korea, Canada, the United Kingdom and Australia could have more leverage to stop Chinese abuses, either through writing new trade rules or erecting higher antidumping/countervailing duty protections to keep subsidized goods out.

"Why in heaven’s name would you think that Japan, Europe, Australia, Canada, the U.K. or whoever are going to have similar views to us on how to deal with the Chinese? It’s fine to say: Look, we’re not going to bash our allies when we want them to cooperate on China. Even friends of the Biden administration understand that the 'work with allies' [line] is pablum. It would be enough of an achievement for Europe to agree on China policy, which it never has."

Scissors said there could be three different reasons the speech was so devoid of specific plans. One, the administration could not want to do anything but is pretending that it is doing something, Scissors said. Another could be that the administration is paralyzed, as different players disagree on how to handle China. That is normal, he said. "The Trump administration was paralyzed -- it had a lot of infighting over China and it was settled over Trump's mood that day," he said.

"The other possibility is the happy one -- they know China engagement isn’t going to work and they’re going through the motions of that before pulling out real policies."