US-China trade: ‘building a wall’ will not address ‘problems posed by China’, Washington warns

  • Biden administration’s first assessment of China’s compliance with the World Trade Organization says Beijing’s actions ‘cause serious harm to workers and businesses around the world’
  • New trade report also says China ‘plainly does not hold the same core values’ that the US and its closest allies hold

The United States is looking to avoid “building a wall” between itself and China on trade, as doing so would adversely affect American interests. But at the same time, Washington aims to maintain a “technological edge” over its strategic rival.

The fresh comments came on Wednesday in the US Trade Representative Office’s latest annual review of China’s compliance with the World Trade Organization (WTO) – the first such assessment under President Joe Biden’s administration.

US Trade Representative (USTR) Katherine Tai also urged China to live up to its commitments in the phase-one trade deal, as doing so would “provide a solid foundation for future bilateral engagement”.

And in a break from last year’s assessment by the previous administration of Donald Trump, the latest report dropped any mention of a separate “phase two” trade negotiation with China, but said that “an initial step” of the US’ strategic approach involves addressing the unresolved issues under the phase-one trade deal, although the purchasing commitments expired at the end of 2021.

China had vowed to buy an additional US$200 billion worth of American goods over 2017 levels, but a report released by the Peterson Institute for International Economics last week said China purchased only 57 per cent of the US exports it had committed to buy under the two-year agreement, which was “not even enough to reach its import levels from before the trade war”.

Chinese trade experts said Beijing put forth its “best efforts” to meet its commitments amid souring bilateral relations and pandemic-related shocks. But some US officials have said China must be held accountable for the deal, while threatening new tariffs.

The USTR report also stressed that the phase-one agreement did not address the “more fundamental concerns” of the US with China, including subsidies, excess capacity, state-owned enterprises, cybersecurity and regulatory transparency.

It said the US strategy must also focus on the long term and needs to be more flexible and sophisticated in light of the current bilateral relations with China.

“It would be appropriate to assume that the problems currently posed by China will be with us for some time, rather than expect that China will willingly make fundamental changes to its state-led, non-market approach to the economy and trade in the near-term or even the medium-term,” the report said.

“At the same time, we cannot build a wall between the US and China and assume that it will address the problems posed by China,” the report added. “That would ignore China’s importance to, and integration in, the world economy and would only change the mode of its impact on the United States, but not the ultimate result.”

The US is prepared to use domestic trade tools to achieve a more level playing field with China while exploring ways to update trade tools to counter China’s so-called unfair policies and practices, according to the report.

“We, therefore, must work to strengthen our economy, our supply chains, our infrastructure, our workers, our farmers and our businesses, and to lay a solid foundation for us to continue to innovate and maintain our technological edge,” the report said.

Unlike last year’s assessment, the new report stressed that China “plainly does not hold the same core values” that the US and its closest allies hold.

It also noted that the US is engaging with like-minded trading partners, including in the Indo-Pacific region, to strengthen existing trade ties and to reduce reliance on China in key supply chains.

It is also working with the European Union and Japan to identify problems of non-market operations and utilise new tools to address shared concerns against China.

“China has not moved to embrace the market-oriented principles on which the WTO and its rules are based, despite the representations that it made when it joined 20 years ago,” Ambassador Tai said in an accompanying statement. “China has instead retained and expanded its state-led, non-market approach to the economy and trade.

“It is clear that, in pursuing that approach, China’s policies and practices challenge the premise of the WTO’s rules and cause serious harm to workers and businesses around the world, particularly in industries targeted by China’s industrial plans.”

Authors: Orange Wang, Wendy Wu, SCMP

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