First Takes: Our Initial Reactions to USTR Tai’s CSIS Speech on China Policy
Trustee Chair in Chinese Business and Economics > Trustee China Hand
U.S. Trade Representative Katherine Tai unveiled the Biden Administration’s China trade policy during a highly anticipated speech on Monday, October 4, at CSIS. In wide-ranging yet carefully worded comments (transcript), she announced that: 1) She would soon enter into conversations with her Chinese counterpart (Liu He) to discuss worrying elements of China’s compliance with the Phase-One Agreement and broader issues of Chinese industrial policy not covered by the deal; and 2) The administration would resume the “exclusions” process to handle applications from U.S. companies who want to import goods covered by the Trump-era tariffs on China. More broadly, she stressed that she is a pragmatist and is keeping all options on the table. Meanwhile, she emphasized that the administration is moving ahead with other policies – investment at home and greater coordination with allies – that will put the U.S. in a stronger position to interact with China.
We asked the Trustee Chair’s resident and non-resident experts to offer their reactions to Ambassador Tai’s speech – what was said, what was not said – and where they think US-China commercial relations are headed.
Senior Adviser and Trustee Chair in Chinese Business and Economics, CSIS
Ambassador Tai was intentionally coy in her remarks at CSIS, providing few details of future U.S. actions. The upside of keeping her powder dry is that she can maintain full flexibility in how she pursues negotiations with China, to not give up hard-won benefits from the Phase One deal, and to keep on the table any kind of potential penalties (from WTO cases to a Section 301 action to a collaborative effort with allies) should negotiations not pan out. A more neutral pose may also be what is needed to get Liu He to the table without forcing him to take an initial hostile reaction to the talks, something we saw the Chinese do in the meetings earlier this year in Anchorage and Tianjin. Initial Chinese reactions to her speech have been positive.
That said, there are downsides to being (or at least sounding) so non-committal. The first is that a wide range of actors are likely to be unsatisfied. She said some things that the business community, labor, and allies may appreciate, but she left unanswered so many questions that all of them are likely still unsure about what comes next and where they fit in. The second is that she may have given Beijing the impression that this represents a return to extended dialogue and that it can rest easy. Although the Trump administration gave up leverage by not working sufficiently with allies (and in many cases alienating them), it gained leverage by raising Beijing’s fears that the Trump administration would take radical actions to make China suffer even at the short-term cost to the U.S. (what I’ve called the “crazy uncle” strategy). The final concern is that even if she stressed that her aim is to keep open all options, the speech likely fueled speculation that she provided few details because there is still no consensus within the administration about exactly what to do and, hence, she could only mention those few elements that had been fully cleared.
In terms of where the overall relationship is going, Tai said she believes decoupling to be unrealistic and would favor a more constructive “recoupling.” But she did not offer any further explanation for how the relationship serves American interests, including our economy, the climate, or national security – for which I, for one, think there are very good answers. As a result, the administration’s trade policy may make a gradual slide toward reduced connectivity, even if not their objective, more likely. Hence, I’d expect the broad commercial effect to be a maintenance of the status quo in the short term with the possibility of greater restrictions – export controls, investment restrictions, and tariffs – over the medium- to long-term.
Fellow, Trustee Chair in Chinese Business and Economics, CSIS
Ambassador Tai’s speech was reflective of the Biden administration’s focus on domestic competitiveness and its stated commitment to working with international partners. But it remained vague on details, meaning that we will have to wait to understand the broader implications.
We still do not have a full picture, for example, of what working with partners means in practice. Despite some recent instances of progress outlined by Ambassador Tai, there are still areas of tension in the US-EU economic relationship that could derail cooperation. One area of potential conflict may be the continued enforcement of the purchase commitments in the Phase One deal. This is inherently inconsistent with a multilateral, free-market approach to the global trade system and could have a negative impact on the economies of other countries, including US partners.
The mention of solar photovoltaic panels as an example of a U.S. industry harmed by Chinese state-supported industrial expansion suggests that they may not receive a tariff exclusion. This is bad news for those installing, financing, and selling solar panels, who have been hurt from tariffs. Meanwhile, current trade policies have so far failed to catalyze large-scale, low-cost, manufacturing of panels in the United States. A more holistic approach to improve manufacturing competitiveness in the U.S. could be helpful in the long term, but if the Biden administration is serious about its near-term climate targets, it will have to rely on imports, including from China. All of this suggests that there are still many conflicting priorities that will have to be resolved in the administration’s China trade policy.
Daniel H. Rosen
Senior Associate (Non-Resident) and Founding Partner, Rhodium Group
Ambassador Tai offered a reasonable synopsis of shortfalls in China’s implementation of past commitments. That backstory is well known. What observers looked for in today’s presentation was clarity on U.S. trade policy strategy for China, especially as it relates to cooperation with other market economies. The speech provided no useful specifics in that regard, and by sticking with the Trump-era Phase-One Agreement, it kept the emphasis on bilateral approaches to problems better addressed in concert with like-minded economies.
Senior Associate (Non-Resident) and Senior Counsel, Arnold & Porter
Looking behind the speech headlines, Ambassador Tai made the key point that the Biden Administration understands that they need to deal with China where it is, rather than expecting it can be changed fundamentally. She also highlighted the important foundations for trade and economic engagement under the existing Phase One Agreement with China – the deal is not time-limited, and it contains a useful structure for interaction and enforcement. Finally, she spoke carefully in order to avoid negotiating in public; this hopefully creates more space for constructive conversations with China.
Where trade policy goes from here depends initially on how China responds under the agreed structure they signed up to. I see this as giving China the best chance to be forthcoming, and then being clear that if there is no progress, or there are continuing concerns on key issues (which seems likely), the U.S. will take protective actions on its own – whether that means new agreements, a Section 301 action, or new ideas for how to achieve protection for American interests.
Senior Associate (Non-Resident) and Assistant Professor of Political Science, Villanova University
The US-China trade relationship will continue to be a difficult challenge, and Ambassador Tai was honest about the fact that she has no silver bullets to offer. Most promisingly, she indicated that the Administration was working on many fronts rather than solely focused on market access.
I was disappointed that she began with a litany of trade complaints, many of which are old and ignore complexities. For instance, steel was surviving in 2000 as an industry mainly on the basis of previous tariffs and quota deals worked out with Europe and Japan. On the other hand, solar PV cells are an example of an area where Chinese private industry led the way and are also instance where the fully integrated supply chain has benefited US solar service providers as well as our greenhouse gas footprint and energy security.
I thought the most hopeful and helpful parts of the discussion were those that focused on what the U.S. can do. Her comment that manufacturing is a vital part of the innovation system is profoundly correct. Ignoring the relationship between manufacturing and innovation has had real costs in the last several decades, as many important green energy industries have moved overseas because the US failed to invest consistently in deployment at scale. She rightly advocates for the President’s “Build Back Better” plan as the way to foster robust industry at home that can compete not just with China, but with trading partners around the world. What I would like to see from the administration is some recognition that “Build Back Better” is industrial policy – good industrial policy just as we had in the space race or in NIH support for the COVID vaccine, as examples – and that the solution to trading effectively with China is not to imagine we will wholesale transform their system – that was always an illusion – but to ensure our system is a robust counterweight. That would be, as she called it, “recoupling.”
Senior Associate (Non-Resident) and Managing Director, PricewaterhouseCoopers
In general, I am encouraged by her remarks about the need for direct contact and discussion with China on trade issues, including getting results from Phase One. Hopefully, this engagement will be part of a pragmatic and holistic approach to a complex and consequential bilateral relationship. I look forward to more details around the tariff exclusions that Ambassador Tai mentioned as well as specific enforcement mechanisms that might be leveraged to get China to step up fulfillment of its Phase One commitments.
I cannot help feeling a little disappointed, however, not to hear about the Biden-Harris Administration’s “whole of government” approach to China. Perhaps this is selfish on my part but an actual plan around that could be very beneficial in my narrow lens of export controls and national security policy, where large gaps of what is to come remain.
John L. Holden
Senior Associate (Non-Resident) and Head of China Practice, McLarty Associates
Emphasizing the need to “take a new, pragmatic approach,” U.S. Trade Representative Katherine Tai signaled to Beijing that she expects a “frank conversation” with her Chinese counterpart. She emphasized that the U.S. has “serious concerns with China's state-centered and non-market trade practices,” and said that the U.S. is "prepared to deploy all tools and explore the development of new ones.” A “senior U.S. official” was quoted Sunday (October 3) as saying, "We recognize that China simply may not change and that we have to have a strategy that deals with China as it is, rather than as we might wish it be.” Beijing will take note of her mention of Xinjiang and will be preparing a sharp reply when she raises it during the meeting.
Beijing might take some comfort from Ambassador Tai’s indication that she would listen to explanations of why China missed some Phase One commitments. More importantly, Chinese officials might have been encouraged when Tai spoke of “durable co-existence” and “recoupling,” though they would have noted that neither concept was defined.
On balance, however, Beijing will find little cheer in the Biden Administration’s defense of American economic interests, and it will be particularly unhappy about the coordinated action towards China among friendly countries that was underscored when Ambassador Tai finished her China speech and headed to the airport for an OECD meeting in Paris.
Related Program Activity
Event: “Chinese Views on the Biden Administration’s China Trade Policy,” CSIS, October 5, 2021.
Commentary: Scott Kennedy, “A Complex Inheritance: Transitioning to a New Approach on China,” CSIS, January 19, 2021.
Commentary: Claire Reade, “Trade May Still Be the Ballast in U.S.-China Relations – At Least for Now,” CSIS, August 10, 2020.
Commentary: John L. Holden, “U.S.-China Relations and Covid-19: What Can Be Done Now,” CSIS, March 20, 2020.
Brief: Scott Kennedy, “Mystery Math: The U.S.-China Phase-1 Purchase Figures Do Not Add Up,” CSIS, March 10, 2020.
Commentary: Scott Kennedy, “A Fragile and Costly U.S.-China Trade Peace,” CSIS, December 13, 2019.
Commentary: Daniel H. Rosen and Scott Kennedy, “Market Metrics: A Fact-Based Approach to the Chinese Economic Challenge,” CSIS, October 10, 2019.
Commentary: Scott Kennedy, “Surviving March Madness in U.S.-China Trade Relations,” CSIS, March 27, 2018.