US-China trade

US Trade Policy Under Biden: More of the Same

US Trade Policy Under Biden: More of the Same

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.

Phase 1 US-China: Implications for Asia

Phase 1 US-China: Implications for Asia

What does this mean for Asia?  At least three things seem obvious. First, the tariff pressures are going to remain for companies.  Not only are firms still subject to extensive tariffs, but the risk of future increases is only marginally reduced.  In the very best case scenario, firms will continue to pay 25% tariffs for another 10 months. Companies may not be able to weather this extent of damage for so much longer.  Many companies will finally pull the trigger on relocation plans.  Most of the supply chain adjustment will not be redirected back to the United States, but will be shuffled around globally.  Many Asian markets are obvious places for moving manufacturing.  Second, the restrictions on Chinese investment into the US will remain in place.  Chinese investment dollars are likely to be redirected, including into other Asian markets.  The impending start of the Regional Comprehensive Economic Partnership (RCEP) will accelerate this trend. 

US-China Relations: Remarks of Singapore PM Lee (Part 1)

US-China Relations: Remarks of Singapore PM Lee (Part 1)

From PM Lee’s speech: First, there is no irreconcilable ideological divide between the US and China. China may be communist in political structure, but it has adopted market principles in many areas. The Soviets sought to overturn the world order. But China has benefited from, and by and large worked within, the framework of existing multilateral institutions. During the Cold War, the Communist bloc sought to export Communism to the world. But China today is not attempting to turn other countries Communist. Indeed, it is often criticised for being too willing to do business with countries and leaders regardless of their reputation or standing, citing non-interference in the internal affairs of other countries. Second, China has extensive economic and trade links with the rest of the world. It is a major node in the world economy, unlike the USSR, whose economic links outside the Soviet bloc were negligible. In fact, all of the US’ allies in Asia, including Japan, South Korea, the Philippines, Thailand and Australia, as well as many of its friends and partners, including Singapore, have China as their largest trading partner. They all hope that the US and China will resolve their differences. They want to be friends with both: to nurture security and economic ties with the US, as they grow their business links with China. In a new Cold War, there can be no clear division between friend and foe. Nor is it possible to create NATO or Warsaw Pact equivalents with a hard line drawn through Asia, or down the middle of the Pacific Ocean. On the other hand, if there is indeed a conflict between the US and China, where will it end? The Cold War ended with the total collapse of the sclerotic planned economies of the Soviet Union and its allies, under the pressure of enormous defence spending. Even then, it took 40 years. It is highly improbable that the vigorous Chinese economy will collapse in the same way.

The Need for Multilateralism: Remarks of Singapore's PM Lee (Part 2)

The Need for Multilateralism: Remarks of Singapore's PM Lee (Part 2)

From PM Lee’s speech: Thus, short of universal trade agreements, we should at least strive for regional or pluri-lateral arrangements. This may be a second best solution, but it is a practical way to incrementally build support for lower trade barriers and higher standards, which can then be adopted by other countries. This was the rationale behind the Trans-Pacific Partnership (TPP). The US originally came on board the TPP because it saw the strategic benefits, although it ultimately withdrew. Fortunately, the remaining 11 members were able to preserve nearly all that had been negotiated, and so the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is now in force. I am glad that more countries have expressed interest to join the CPTPP, including South Korea, Thailand and the UK. China is also watching the CPTPP carefully. They are not ready to join now, but I hope that they will seriously consider doing so sometime in the future. Similarly, I hope one day it will become politically possible for a US administration to rethink the US’ position, and recognise that it stands to gain, economically and strategically, from becoming a member of the partnership that it played such a leading role in designing. Meanwhile, countries in the Asia Pacific are working on the Regional Comprehensive Economic Partnership (RCEP). The RCEP has a different footprint from the CPTPP. It covers all the key countries on the western side of the Pacific, including Northeast Asia and Southeast Asia, and also importantly India, Australia and New Zealand. This inclusive configuration minimises the risk of the RCEP being misperceived as a bloc that excludes the US and its friends. With such a wide range of participants, RCEP standards are naturally less ambitious than the CPTPP’s, and the deal is also much harder to negotiate. Nonetheless, I hope the participants can take the final step to complete the RCEP by this year, or if not, as soon as the domestic politics of the key players allow.

Dueling Views on Trade on Display This Week

Dueling Views on Trade on Display This Week

The latest Trump tariff threat, of course, is designed to facilitate conclusion of the trade negotiations.  Talks are scheduled for Washington DC on Thursday.  It is certainly possible that the impeding escalation of tariffs will concentrate minds once more, leading to a very speedy conclusion of talks.  Or not.  Either way, the coming few days promise more drama on the US-China front than trade watchers have seen in months-- a major escalation of the trade war will happen on Friday or a truce. A second notable set of events takes place early next week that will also help shape global trade for the future.  Dueling meetings are scheduled for Geneva and New Delhi for May 13-15.  The former is the setting for the first round of talks of what is called the “plurilateral” on e-commerce in the World Trade Organization (WTO).  Not all WTO member countries have agreed to join negotiations on the topic, so only a subset of members (74 so far) will sit down to start.