US, EU Trade Groups Say Balancing China Threat and Commercial Relationship Difficult

How to manage China's market distortions is an ever-present question in the relationship between the U.S. and the EU and will need to be addressed eventually, the deputy director-general of BusinessEurope and the president of the China Center at the U.S. Chamber of Commerce said during a Dec. 9 Chamber event. Luisa Santos, from BusinesEurope, said that she sees new ambitions in Europe to address the disruption caused by non-market economies, including an anti-coercion tool that was just announced. But, she said, there needs to be more work in coordinating with the U.S. and Japan on how to address subsidies, state-owned enterprises and forced technology transfer. "I think one of the most important things to agree on what we think is a distortive subsidy and then the best way to address it," she said.

Santos said businesses are disappointed that the Comprehensive Agreement on Investment with China will not be ratified over human rights issues in China, though they understand the climate is not right for it. "We think the merits are there," she said. "It’s not going to solve all the bilateral problems, but it would address some of the distortions," she said, particularly the fact that Chinese companies can sell in Europe more easily than European companies can sell in China.

Jeremie Waterman, from the Chamber, said businesses are pleased that the U.S. trade representative will be engaging with China on how it has lived up to the phase one trade deal negotiated by her predecessor. He said that agreement is "not what the business community would have wanted," but that even so, it's important for there to be full implementation.

Waterman said that the decision to offer another tariff exclusion process was a small step forward. "We’d certainly like to see that tariff exclusion process advanced expeditiously, and also broadened considerably," he said. While Waterman criticized President Joe Biden for not changing the approach that much from Donald Trump on China, he then said, "to be fair, any administration would struggle with how to approach China because of the complex nature of the challenge."

He said China has been turning away from fair market practices for a long time, even before Trump took office. He said that those practices cause negative externalities. One of the distortions is indigenous innovation policies that were a trigger for the Section 301 investigation. He said China is also engaged in coercive diplomacy, extraterritorial application of law and internal actions contrary to U.S. values.

Addressing all of that, plus recalibrating "some of the uncomfortable dependencies that have developed with China," he said, "while preserving what is a very large and important commercial relationship with continuing areas of mutual benefit and interest," is quite tricky.

He said that Europeans largely share the same view of China's market distortions, but he questions how far they're willing to go to address the problem. "The U.S. government has been more assertive, more forthright in the narrative and in taking actions, and U.S. companies have paid a price."