Beijing Fell Short on Trade Deal Promises, Creating Dilemma for Biden

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China misses target to buy American goods, but retaliation could cost US companies and consumers

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Alternatively, the US could ignore the shortfall, which could signal to Beijing that it will not face the consequences.

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The US response is being closely watched by US businesses, many of whom want a smooth relationship with China to ensure continued access to its vast market. Others, including some domestic manufacturers, take a hard line, citing Chinese government support for favored industries and saying the US needs to nurture its supply chains.

Trade analysts say it is unlikely President Biden will escalate tensions with China as he seeks to contain inflation and advance his domestic agenda. But they also point out that President Biden has yet to articulate a clear strategy for dealing with Beijing.

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Scott Kennedy, a senior adviser at the Center for Strategic and International Studies, said: “The Biden administration is bound by a lack of clarity about how it evaluates the problem and potential solutions.” He said similar conflicts have arisen in other policy areas, including the administration’s worker-centered trade policy and climate targets.

The White House and the Office of the US Trade Representative did not respond to requests for comment on the reduction in Chinese purchases.

In a meeting with reporters in November, US Trade Representative Catherine Tai said her team was discussing shortcomings with their Chinese counterparts.

“We are optimistic in our work that the effort we are putting in this particular exercise will result in better results,” Ms. Tai said.

A spokesman for the Chinese embassy in Washington said that China’s purchase of American goods in 2020 was hampered by the economic slowdown triggered by the Kovid-19 pandemic.

“China has worked hard to address the many negative effects of the pandemic, the global economic slowdown and disrupted supply chains, and has promoted the joint implementation of the agreement,” spokesman Liu Pengyu said.

Under the so-called phase one trade deal signed in January 2020, China agreed to increase purchases of US goods and services by $200 billion over 2017 levels during a two-year period ending Friday, including manufactured goods. Specific targets were set for agricultural products. , services and energy.

Then-President Donald Trump called the deal an “important step”, but skeptics questioned how Beijing would be able to buy back so fast. Chuck Schumer (D., NY) dubbed the deal “a tentative and unreliable promise from China to buy some soybeans.”

With the two-year period approaching, data shows China has increased its US purchases, but far short of the target set in the trade deal.

Based on trade data as of November, China was 17% short of its agriculture target, 41% below its manufacturing target and 62% below its energy target, according to calculations by Chad Bown of the Peterson Institute for International Economics. Ability for last-minute deals to fill gaps in the window specified by the agreement.

Data for the services trade is not available on a monthly basis, but annual figures show that US services exports to China declined by 32% for 2020.

The trade deal includes a dispute resolution mechanism that Mr Biden could use to force China to make additional purchases. Under this mechanism, the US may eventually impose new tariffs or reinstate some of the tariffs it reduced as part of the deal (even if it dropped most of the tariffs to help ensure compliance).

But raising tariffs would increase costs for US companies that import Chinese goods such as clothing and electronics. Those companies pay the tariffs and often incur high costs to American consumers.

The US-China Business Council, a trade group that represents US companies with large Chinese operations, in a letter last month urged the US to withdraw tariffs and renegotiate the issues left out of the 2020 trade deal, Such as pushing China away from relying on state-owned enterprises and subsidies for private enterprises.

Jamieson Greer, former chief of staff to US Trade Representative Robert Lighthizer, who led the Trump administration’s trade talks, said US exports to China were still strong in 2020 and 2021, despite missing the target.

Mr. Greer said, “It is better to aim higher and achieve historic exports, as we did in 2020 and 2021, thanks to the Phase I deal, contrary to expectations that what we will sell based on the principles of the China market.” Will start buying it.” Now partners in King & Spalding LLP.

With agricultural products in particular, China has ramped up US purchases, helping to drive up prices for American farmers, who were badly hit by falling prices during the US-China trade war.

US beef, pork and poultry producers exported record amounts to China in 2020 or 2021, while other agricultural exports were close to records. For example, in 2020, China imported $14.1 billion of soybeans, only slightly less than the record $14.2 billion it set in 2016.

Still, the $57.4 billion agricultural goods China bought from 2020 to November 2021 is well short of the $73.9 billion needed to reach the target.

For manufactured goods, China promised to buy $210.7 billion over a two-year period. As of November, it has made purchases of $117.8 billion.

The biggest shortfall of all was in energy like crude oil and natural gas. The trade deal called for a $67.7 billion purchase from China; As of November, it had purchased $24 billion to meet only 37% of the target.

Historically, the US shied away from purchase agreements and instead sought to persuade countries to reduce structural trade barriers that hindered private enterprise.

The Trump administration tried a different effort, saying it needed a tougher stance to use government subsidies to China to reduce US competitors to strategic industries, tolerance for intellectual property theft, and foreign competitors. Its complex constraints to be allowed to prevent it from gaining a foothold in many. Industry.

That stance included imposing new tariffs on Chinese imports in 2018, which eventually climbed to cover nearly $370 billion in goods. business deal of 2020 In some cases there was only a ceasefire, as most of the tariffs remain in effect.

Going forward, Mr. Kennedy of CSIS argues that the US should push China towards a market-oriented economy – and not set procurement targets that effectively reinforce Chinese state control.

“This experiment was a failure,” Kennedy said of the trade deal. “It empowers all the wrong parts of the Chinese system that we want to disappear. It was a disaster and I hope we learn the right lessons and never go there again.”

Write Josh Zumbrun at [email protected]

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