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Trump Administration Still Favours Tough Stance on Trade with Mainland China

Recent meetings between U.S. Commerce Secretary Wilbur Ross and senior mainland Chinese officials in Beijing indicated that bi-lateral trade tensions remain high ahead of President Trump’s anticipated visit to mainland China later this autumn. The two sides said they prefer to resolve differences peacefully but will take stronger action if necessary. Mainland Chinese officials present at these meetings included Premier Li Keqiang, Vice Premier Wang Yang, National Development and Reform Commission Chairman He Lifeng, Director of the Party Central Economic and Financial Affairs Leading Small Group Liu He, Minister of Commerce Zhong Shan, and Minister of Industry and Information Technology Miao Wei.

A DOC press release said the meeting between Ross, U.S. Ambassador to mainland China Terry Branstad, mainland Chinese Premier Li Keqiang and others featured “a friendly and honest exchange of views” on concerns the United States regularly raises with respect to mainland China, including its trade surplus with the United States, intellectual property rights protections, tariffs and non-tariff barriers, and lack of “fair and reciprocal treatment” for U.S. companies. Ross reiterated the need for “concrete deliverables and meaningful action” on these and other issues. The meeting also highlighted that the two sides are still at odds over the Section 301 investigation the Office of the U.S. Trade Representative is currently conducting of mainland China’s acts, policies and practices related to technology transfer, intellectual property and innovation. This investigation could lead to measures such as additional tariffs or restrictions on U.S. imports of mainland Chinese goods.

According to the press release, Ross “continued to stress the need for concrete action” to address U.S. concerns in this matter and reiterated that Washington will “take action to defend American workers and businesses if co-operative efforts bear no fruit.” Mainland Chinese officials reportedly responded that “they would have to respond in kind to any potential action by the U.S.” At the same time, the DOC states, both sides agreed that bi-lateral trade frictions should be resolved through negotiation and mainland China “continually stressed that dialogue is preferable to uni-lateral action.”

Meanwhile, U.S. Trade Representative Robert Lighthizer told an audience at the Center for Strategic and International Studies on 18 September to “expect change, expect new approaches and expect action” on trade policy from the Trump administration. Notably, Lighthizer said the “principal challenge we face” is how to deal with mainland China in a global trading system. Mainland China is an “unprecedented” threat to that system, he said, because of “the sheer scale of their co-ordinated efforts to develop their economy, to subsidise, to create national champions, to force technology transfer, and to distort markets in China and throughout the world.” Referring to USTR’s on-going Section 301 investigation of intellectual property rights practices in the mainland, he said “there’s an awful lot to indicate that there’s a problem” and warned that if existing means are insufficient to address that problem “we’ll try to devise other remedies.”

Lighthizer also indicated he intends to be proactive in working to overcome market distortions and achieve “free and fair competition.” The United States has “trade agreements that we don’t think have worked out in our interest,” he said, but “years of talking about these problems has not worked.” Instead, the United States “must use all instruments we have to make it expensive to engage in non-economic behaviour and to convince our trading partners to treat our workers, farmers and ranchers fairly.” The Trump administration has “a different philosophy,” he said, “and there will be change.”

On U.S. trade agreements, Lighthizer reiterated his and the president’s position that “trade deficits matter” although he did not explain why. Instead he argued that the “rules of trade” are a major contributor to U.S. trade deficits, citing in particular the lower tariffs the United States imposes on automobiles than other developed countries, border tax adjustments by trading partners, and currency undervaluation. He also said changes in trade deficits will be considered in determining whether the United States’ existing free trade agreements are “working to our benefit” and suggested that the White House will seek to renegotiate those that have resulted in a “disequilibrium.”

On the topic of NAFTA, the one FTA that the administration has already started renegotiating, Lighthizer was uncertain as to whether the talks can be concluded before the end of this year. “We’re running very quickly somewhere,” he said, referencing the scheduling of each negotiating round three weeks apart as well as the fact that the two rounds held so far have not appeared to yield much forward progress.

With respect to possible new trade agreements, Lighthizer affirmed President Trump’s preference for a bi-lateral approach. “Not only can you negotiate better agreements,” he said, “but you can enforce them more easily,” because enforcement of multi-lateral or pluri-lateral agreements involves “disrupting too many things.” However, he gave no indication as to when any such negotiations might begin or which countries might be involved. He noted that “when and if” the United States might resume negotiations on the Transatlantic Trade and Investment Partnership with the European Union is “something that we’re looking at right now.”

Much of Lighthizer’s criticism was focused on the World Trade Organisation. He argued that the WTO was “not designed to successfully manage mercantilism” on the scale being practiced by mainland China and that as a result the United States “must find other ways to defend … our economic system.” He was also sceptical of the WTO’s ability to achieve “negotiated outcomes” at its ministerial meeting this December, saying “there are a number of areas where we would be willing to engage but there seems to be something blocking it in every case.” He expressed hope that the ministerial would result in agreement on the WTO’s future work but would not say if that work should include on-going negotiations to liberalise trade in services and other sectors, noting that USTR’s study on which such initiatives the United States wants to pursue is expected “hopefully in another month or so.”

Lighthizer was particularly critical of the WTO’s dispute settlement process, which he called “deficient.” Over the years this process “has really diminished what we bargained for or imposed obligations that we do not believe we agreed to,” he said, echoing a complaint raised by policymakers from both sides of the ideological spectrum in recent years. He attributed these difficulties to the fact that the United States sees the WTO agreements as a contract giving participants specific rights whereas others “tend to think they’re … evolving kinds of governance.” Given that the dispute settlement process is “a fundamental part of the WTO,” he said, sorting out these differences is “what we have to do.”

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