US Vice President Joe Biden met with China’s Xi Jinping on August 23 and the two leaders signed a joint communiqué. But it doesn’t seem like all of Beijing has gotten the memo, as Bloomberg reported that Chinese officials are saying they aren’t going to make good on their promises.
WASHINGTON— Beijing’s pledge to increase purchases of U.S. products and services under a 2020 trade agreement ends Friday, with China anticipated to fall well short of its expectations, posing a problem for the Biden administration as it considers a response.
Certain tariffs that were reduced as part of the trade agreement might be reinstated by the White House, but this could backfire if China restricts US imports or takes action against American firms doing business there.
Alternatively, the US might disregard the gap, sending a message to Beijing that it would not be punished.
Businesses in the United States are keeping a careful eye on how the United States reacts, since many of them want to maintain access to China’s massive market. Others, including some domestic businesses, adopt a tougher stance, noting Chinese government backing for preferred sectors and asserting that the United States must cultivate its own supply networks.
As he strives to manage inflation and promote his domestic agenda, trade observers think President Biden is unlikely to exacerbate hostilities with China. They do, however, point out that President Biden has yet to lay out a clear plan for dealing with Beijing.
“The Biden administration is tangled up in its own lack of clarity about how they assess the issue and possible remedies,” Scott Kennedy, a senior advisor at the Center for Strategic and International Studies, said. Similar disagreements have developed in other policy areas, such as the administration’s worker-centric trade policy and climate objectives, he said.
Conversations with China on its performance under the agreement are still ongoing, according to Adam Hodge, a spokesman for the US Trade Representative’s office. He said that China “made explicit obligations” and that they “should live up to them.” He went on to say that the Biden administration still has “fundamental concerns [with China’s] nonmarket trade policies and practices and their detrimental effects on the United States economy,” including those that weren’t addressed in the January 2020 trade agreement.
U.S. Trade Representative Katherine Tai told reporters in November that her staff was examining the gaps with their Chinese colleagues.
“We are hopeful that the effort we are putting into this specific exercise will result in a better outcome than if we had not put in the effort,” Ms. Tai added.
The economic slowdown precipitated by the Covid-19 epidemic in 2020, according to a representative for the Chinese embassy in Washington, has hampered China’s purchasing of American products.
“China has worked hard to overcome the pandemic’s numerous harmful effects, including global economic slowdown and interrupted supply chains, and has pushed for the agreement’s joint implementation,” said spokeswoman Liu Pengyu.
China fell significantly short of its aim for energy imports, such as crude oil and natural gas, only achieving 37% of its target.
The Wall Street Journal’s Maddie McGarvey took this photo.
China pledged to raise its purchases of US goods and services by $200 billion above 2017 levels during a two-year period ending Friday under the so-called Phase One trade accord inked in January 2020, with particular objectives established for manufactured goods, agricultural products, services, and energy.
The agreement was welcomed as a “momentous step” by then-President Donald Trump, but others questioned how Beijing would be able to expand purchases so much. Sen. Chuck Schumer (D-NY) described the agreement as “a transient and untrustworthy pledge from China to buy some soybeans.”
With the two-year term coming to an end, data reveals that China has boosted its imports from the United States, but well behind the trade deal’s expectations.
According to calculations by Chad Bown of the Peterson Institute for International Economics, China was 17 percent short of its agriculture goal, 41 percent short of its manufacturing goal, and 62 percent short of its energy goal based on trade data through November, far beyond the ability of last-minute deals to fill the gap in the window specified by the agreement.
Although monthly statistics for services trade isn’t available, yearly data for 2020 revealed a 32% reduction in US service exports to China.
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Mr. Biden might utilize the trade deal’s dispute resolution system to push China to make further purchases. The US might use this tool to impose additional tariffs or reinstate certain levies that were cut as part of the pact (even though it left most tariffs in place to help ensure compliance).
However, imposing duties would raise expenses for American businesses that import Chinese items like apparel and electronics. Tariffs are paid by these firms, and the additional costs are generally passed on to consumers in the United States.
In a letter sent last month, the US-China Business Council, a trade group that represents American companies with large Chinese operations, urged the US to lower tariffs and refocus negotiations on issues that were left out of the 2020 trade deal, such as encouraging China to move away from relying on state-owned enterprises and providing private-sector subsidies.
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Despite missing the benchmarks, U.S. exports to China were still robust in 2020 and 2021, according to Jamieson Greer, the former chief of staff to U.S. Trade Representative Robert Lighthizer, who spearheaded the Trump administration’s trade discussions.
Mr. Greer, now a partner at King & Spalding LLP, said, “It’s better to set high expectations and accomplish record exports as we achieved in 2020 and 2021 owing to the Phase One arrangement, than than anticipating that China would just start buying what we’re selling based on market principles.”
China has increased its purchases of American agriculture goods in particular, helping to support prices for American farmers who have been hurt hard by declining prices as a result of the trade war.
In 2020 or 2021, US cattle, hog, and poultry farmers sent record quantities to China, while other agriculture exports were close to records. China purchased $14.1 billion of soybeans in 2020, almost missing the $14.2 billion record established in 2016.
Nonetheless, China’s purchases of agriculture supplies totaling $57.4 billion from 2020 to November 2021 fall significantly short of the $73.9 billion required to meet the aim.
China has committed to buying $210.7 billion in manufactured products over the next two years. It has spent $117.8 billion as of November.
Energy, such as crude oil and natural gas, was the largest miss of all. China was supposed to buy $67.7 billion under the trade agreement, but as of November, it has only acquired $24 billion, putting it on track to meet just 37% of the objective.
The United States intends to challenge China’s global power by providing infrastructure, vaccinations, and renewable energy. The proposal, called Build Back Better World, attempts to compete with China’s Belt and Road Initiative, according to Stu Woo of the Wall Street Journal. Daniel Orton contributed to this composite photo.
In the past, the United States avoided purchase agreements in favor of persuading nations to decrease structural trade obstacles that hampered private businesses.
The Trump administration took a different approach, claiming that a tougher stance was required in light of China’s use of government subsidies to allow strategic industries to undercut American competitors, its tolerance for intellectual property theft, and its complex barriers that prevent foreign competitors from entering many industries.
In 2018, the United States imposed fresh tariffs on Chinese imports, which finally grew to include roughly $370 billion in products. In some ways, the 2020 trade agreement was really a cease-fire, since most tariffs remain in place.
Mr. Kennedy of CSIS believes that the United States should continue to push China toward a market-oriented economy, rather than setting purchasing objectives that effectively entrench Chinese state control.
Mr. Kennedy stated of the trade agreement, “This experiment was a disaster.” “It strengthens all of the worst aspects of the Chinese system that we want to eliminate.” It was a catastrophe, and I’m hoping we’ll learn our lessons and never go back.”
—This article was co-written by Anthony DeBarros.
Josh Zumbrun can be reached at [email protected]
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