US-China trade: expect more carrots and sticks from Biden White House, analysts say

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Washington will continue its “carrot and stick” approach to trade with China, analysts said after a top US trade official unveiled the White House’s long-awaited policy on the issue.

US trade representative Katherine Tai formally laid out the White House’s China trade policy in a speech to the Washington think tank Centre for Strategic and International Studies on Monday morning, nearly nine months into the presidency of Joe Biden.

Tai’s address followed a top-to-bottom review of import tariffs and other measures imposed by the administration of Biden’s predecessor Donald Trump.

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In her speech, Tai said China had failed to meet some commitments in the phase one trade deal between the two countries, an agreement that allows the United States to unilaterally reimpose tariffs in cases of non-compliance, and sounded pessimistic that the situation would change without a hard line.

High-level bilateral dialogues carried out by successive administrations after China acceded to the World Trade Organisation (WTO) in 2001 “were intended to push China towards complying with and internalizing WTO rules and norms, and making other market-oriented changes”, she said.

“But those commitments became more difficult to secure over the years, and China’s follow-through was inconsistent and impossible to enforce,” she added.

Before Tai’s address, US officials briefing reporters said she would hold a virtual meeting with Chinese Vice-Premier Liu He to discuss the trade deal “in the coming days”.

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Without confirming who would be on the other side of the negotiating table, Tai said the talks would help her determine how her department to follow up on changes to USTR’s China strategy.

“There are commitments that have been made; that means that they are commitments that we have to seek follow through on,” Tai said during a question and answer session after the speech.

“This conversation around the purchase commitments that we are preparing to have is going to be directly informative to determining how effective this is at this point in time for the challenges that we have in this relationship,” she added.

She would also start a process to exclude some Chinese imports from Trump-era tariffs.

The phase one deal struck at the end of 2019 demands that China increase purchases of US goods and services by US$200 billion above 2017 levels in 2020 and 2021.

With the deal expected to expire at the end of the year, China remains more than 30 per cent short of these targets, according to data released by the Peterson Institute for International Economics.

Tai said the US continued to have serious concerns about China’s state-centered and non-market trade practices.

She said the US would use a full range of tools to defend American economic interests from harmful policies.

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George Magnus, a research associate at the University of Oxford’s China Centre, said he expected the Biden administration to persist with its carrot-and-stick approach as it continued to seek leverage in dealing with China.

“The strictly trade matters seem to provide for a stick – review phase one compliance and report – and a carrot – review tariff exclusion process,” Magnus said.

“It’s been reported that the US has allowed about a third of requests for exclusion. It’s not clear though if Tai is suggesting more or fewer requests would be granted.”

Tai will hold a meeting with Chinese Vice-Premier Liu He to discuss the trade deal “in the coming days”. Photo: AP
Tai will hold a meeting with Chinese Vice-Premier Liu He to discuss the trade deal “in the coming days”. Photo: AP

Wu Xinbo, director of Fudan University’s Centre for American Studies, said the prolonged policy review process reflected fault lines in the Biden administration, which was under pressure from American business groups to clarify its China trade policy.

“The long delay shows an internal rivalry in the Biden administration – one camp sees the tariffs as harming US interests and another still sees tariffs as a useful tool in the next stage of talks,” Wu said.

He said he expected China would continue to push for gradual cancellations of all tariffs as well as sanctions of Chinese companies and individuals imposed during the Trump era.

Yun Sun, a senior fellow at the Stimson Centre in Washington, said selective decoupling would continue under the Biden administration.

“Trade relations are already tense. I don’t think China should expect Biden’s trade policy to be significantly friendlier than Trump’s. Selective decoupling appears inevitable, even if Biden might allow for some sales of semiconductor chips to China.”

Additional reporting by Robert Delaney

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