United States Trade Representative (USTR) Katherine Tai gave what was billed as a major speech at CSIS outlining US trade policy on October 4. A careful review of China policy has been underway for months and Tai’s speech was to deliver the results of this study.
At the end of her prepared remarks and a short round of questions, observers were left with few clues about the future trajectory of US policies and little detail beyond broad brush strokes already sketched over previous months.
What was made clear is that US trade policy, in practice, is not likely to look substantially changed from paths pursued by the previous Trump administration. In fact, if Tai’s speech were read alongside similar policy statements made under the Trump team, it would be difficult to pick out who said what.
First, Tai argued that China has failed to follow appropriate actions or adjust its bad behavior despite a long history of engagement. The approach used under the Trump administration, in particular the Phase 1 agreement, may not have been exactly the model she would have chosen (what model she might have thought more suitable was not discussed), but it remains in place. Tai did express distain for the term “Phase 1,” even as she essentially promised to follow it.
Tariffs will continue to be imposed on Chinese imports, although the administration will restart the process of reviewing requests for exclusion. With limited details available on the process, however, it is unclear whether tariffs will be waived in large part, or only in limited circumstances. Nor was there any clarity on how long the process may take to conclude.
Given the relatively limited time “left” on the Phase 1 agreement, even a short delay may deliver only modest benefits to US firms struggling to manage tariffs of up to 25% which have now been imposed, in some cases, for years.
The purchasing commitments that were a key part of the agreement for Trump are also expected to be fulfilled. When asked about Chad Brown’s estimated gaps between targets and purchases, Tai claimed to have never heard of this work. (Sorry Chad—tough beat for someone who has consistently delivered the “gold standard” of tracking China’s adherence to Phase 1 commitments.)
Second, Tai has no plans to launch a “Phase 2” of discussions any time soon, although she did promise to start “frank” conversations with China on an unspecified timeline. Such conversations are supposed to address “the whole” of the US-China relationship.
Third, Tai gave a robust defense of what might be called “America First 2.0.” This is a set of policies that clearly puts American interests, workers, and businesses at the front.
What, exactly, an American-centered trade policy ultimately looks like remains vague. The past process of trade activities, however, has failed to deliver. By contrast, Tai promised to defend “to the hilt” US economic interests.
Fourth, Tai pledged to work closely with allies to achieve her objectives. Given the continued prominent placement of America First into US trade policy, however, it is not clear how many allies might be so eager, ready or willing to join on to such a coalition. With a near-total lack of specifics in her address, it is not obvious what allies might or might not be expected to do or deliver as part of the overall US approach. Absent much more “frank” conversations with allies that actually deliver a concrete sense of policy options, allies are likely to be hesitant to join the Americans.
When asked for specifics, Tai replied that the US would “use all the tools at its disposal, and create new tools when necessary.” When asked about whether Section 301 might be one of those tools, Tai demurred and merely said that the US had a set of tools for trade.
One tool that does not appear to be available is a discussion of reentry to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Tai was directly asked about this and said that it was not currently on the table.
Now that China has formally applied to join the CPTPP, the dynamics of this trade agreement have shifted substantially. If the US is not keen to rejoin, what are policy options that might be supported instead? What is the position of the US towards its allies that have to decide what to do about China’s application? Will the US trigger the clause 32.10 in the USMCA (NAFTA 2.0) that threatens USMCA withdrawal if Canada and Mexico sign a trade agreement with China?
Questions like these are extremely important and time-sensitive. It is not helpful for the US to claim to be undertaking a robust review of circumstances for another 6-8 months and end up with a vaguely defined response to challenges.
Also left unsaid in Tai’s speech is what the US is prepared to do if the Chinese fail to properly engage or do not meet the expectations under the Phase 1 agreement. Tai highlighted the importance of enforcement, but did not discuss mechanisms for promoting adherence to past commitments.
Trade watchers will certainly have noticed that one potential venue for managing trade issues with China, the World Trade Organization (WTO), was barely mentioned at all. The only reference was to the US having won all 27 dispute settlement cases filed against China.
There is, of course, significant irony in having this reference embedded in Tai’s speech, as the US continues to block/refuses to engage/has not yet resolved (take your pick on which term you like best) with WTO members on reforms to the WTO’s appellate body process to restart this broken system.
In short, at the end of an hour, the major speech on US trade policy revealed very few specifics but certainly looks like a continuation of past practices. The US-China relationship will continue to be fraught with limited clarity on what sort of tools might be in the offing and few indications of future plans beyond the likely restart of dialogue.
Trade will certainly remain interesting. Firms should buckle up for what is likely to be a continued bumpy ride.
***This Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore.***