US-China trade war: Washington urged to cut tariffs despite deal shortfall, stop issuing threats

• China is reported to have bought only 57 per cent of the additional US$200 billion worth of goods and services in 2020 and 2021 under the phase-one trade deal
• US Secretary of Commerce Gina Raimondo has vowed to hold China to the terms of the deal before moving forward

China has called on the United States to remove existing tariffs and stop threatening new levies in response to Beijing missing the targets under the phase-one trade deal.

US Secretary of Commerce Gina Raimondo and the US Chamber of Commerce moved quickly to ratchet up the pressure on Beijing after a report on Wednesday showed China fell over 30 per cent short of the targets outlined in the Trump-era agreement.

China bought only 57 per cent of the additional US$200 billion worth of goods and services in 2020 and 2021, relative to 2017’s levels, according to a report by the Peterson Institute for International Economics (PIIE), with Raimondo vowing to hold China to the terms of the deal before moving forward.

“Ever since the deal took effect, China has taken efforts to overcome the shocks of the [coronavirus] pandemic, the global economic recession and blocks in the supply chains, in implementing the deal,” commerce ministry spokesman Gao Feng said on Thursday.

“We hope the US removes the additional tariffs imposed on China and all sanctions and containment measures, in order to create a sound situation and conditions to expand bilateral trade cooperation.”

The US-China trade war saw tariffs placed on a total of US$550 billion worth of goods, including US$350 billion originating in China.

Raimondo said in an interview with Bloomberg on Wednesday after the report was released that Washington “is in the thick of those negotiations now” but that “Beijing is not playing by the rules”.

The US Chamber of Commerce also said on Wednesday that the White House was considering a new tariff probe and other options, such as taking actions with its allies, if current talks failed to persuade Beijing to meet the terms of the deal, according to Reuters.

“Threatening and pressuring unilaterally for one’s own benefits will not help solve problems, but only damage mutual trust and hurt the atmosphere for dialogues and negotiations,” said Chinese Ministry of Foreign Affairs spokesman Zhao Lijian on Thursday.

According to US media, Washington has listed seven other unsolved issues, including reforming China’s biotech approval process, the acceptance of new US seafood species and negotiations on a new health protocol that could lead to the removal of a ban on live cattle imports.

US Department of Agriculture data shows that China has continued to purchase US goods with 504,000 metric tons (504 million kg) of soybeans bought this month for delivery during the 2022-23 marketing year, which begins in September.

In January, China also bought 789,000 metric tons of soybeans and 497,800 metric tons of corn from the US.

“If there are sound situations for negotiation, and if the US gets the pandemic under control and addresses the labour shortage, it is likely China can expand imports from the US,” said Lu Xiang, a senior researcher on US studies with the Chinese Academy of Social Sciences.

“The US has not taken China’s demands on removing tariffs seriously and has wasted time for negotiation.”

Lu added that the trade deal does specify remedies and how imports will proceed after the deal expired at the end of 2021, but Ding Shuang, chief Greater China economist at Standard Chartered Bank, said that more tariffs may not be the answer.

“China may complain that companies cannot purchase what they want due to US restrictions. For the US, the question is what else can it do to hold China accountable without inflicting pain on the US consumers, with inflation already touching 40-year high,” said Ding.

Huo Jianguo, the former head of a think tank under the commerce ministry, believes there is “basically no atmosphere for negotiation” yet.

“Now [both sides] don’t have consensus in many areas, and the US is still taking various measures to restrict and suppress China,” he said.

He Weiwen, a senior fellow at the Beijing-based think tank, the Centre for China and Globalisation, said criticism from the US was unjustified and “irresponsible”.

“China didn’t break its promises,” he said. “Purchases are just a part of the phase-one trade deal. The deal covers technology transfer, IP protection, agriculture, macro- economic policies, exchange rates and expansion of trade, to be enforced by both sides equally,” he said.

“Why don’t they mention other issues? More importantly, it’s not unconditional.”

China has tried its best to honour the deal, He added, by posting higher import growth from the US than from any other country.

But it was limited by restrictions on hi-tech products, as well as the unforeseen aspect of the coronavirus, which emerged around the same time the deal was signed in January 2020.

“China is a market economy. Purchase volume should be determined by companies, and it must not be at the cost of other [World Trade Organization] members,” He added.

“The bilateral difference can only be addressed through negotiations, rather than threat.”

Gavekal Dragonomics said in a report on Wednesday that the outlook for US-China trade relations this year is “for incremental ratcheting-up of sanctions and possibly tariffs, but no substantive large-scale action”.

“Drama could return in 2023, when a probable Republican Congress will push harder for legislation to curb flows of technology and capital to China,” the report added.

Authors: Orange Wang, Frank Tang, Ji Siqi, SCMP