(What’s Left of) Our Economy: Biden Makes Clear: Trump’s China Trade Strategy Sure Won Reelection

Tags

Biden, Biden administration, Buy American, decoupling, Donald Trump, Katherine Tai, manufacturing, monitoring and enforcement, Phase One, sanctions, supply chains, tariffs, U.S. Trade Representative, USTR, {What's Left of) Our Economy

Meet the new U.S. China trade strategy. And now it’s all but official: Same as the old (Trump administation) China strategy. Further, as should be obvious to anyone with a realistic view of core U.S. interests when it comes to the People’s Republic, that’s decidedly great news for America.

Overlooked amid dramatic developments like the Ukraine war and surging inflation and Ketanji Jackson Brown winning a Supreme Court seat, U.S. Trade Representative (USTR) Katherine Tai revealed late last month that after years of dumping on the former President’s approach to the subject as unproductive and even counterproductive, Joe Biden has finally agreed that Donald Trump’s priorities on this front were right all along.

Specifically, rather than trying to change the predatory Chinese practices that for decades have victimized U.S. businesses and workers, Mr. Biden’s trade envoy indicated to Congress that this goal had become quixotic.  So the administration would pivot to the eminently feasible aim of using tariffs both to punish Beijing’s offenses and eliminate the advantages created by its subsidies and intellecual property theft and investment blackmail and host of import barriers.

Not that Trump ever explicitly stated that reforming China was pointless. In fact, the Phase One trade agreement he signed with Beijing in January, 2020 committed the Chinese to dismantle numerous protectionist policies. But for two reasons it should have been clear that his administration’s emphasis lay elsewhere. The first was Trump’s relatively early resort to towering and sweeping tariffs. The second was the lopsidedly pro-U.S. nature of Phase One’s dispute-resolution system.

By securing China’s agreement to enforcement procedures that on a de facto basis enabled the United States to tariff China for Phase One violations much more aggressively than vice versa, and that greatly reduced the odds of retaliatory levies, Trump and his trade chief, Robert Lighthizer, signaled deep skepticism that China would verifiably comply with the deal.

Candidate Biden, however, faulted Phase One for failing to address Chinese trade predation, and once elected, told a leading pundit that he’d differ from Trump on the issue by pursuing policies “that actually produce progress on China’s abusive practices.”

Last October, Tai was still complaining that Trump’s deal “did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy,” and her office repeated the charge just two months ago in the administration’s annual Report to Congress On China’s WTO Compliance. In that survey, moreover, the trade office added, “China is an important trading partner, and every avenue for obtaining real change in its economic and trade regime must be utilized.”

But in testimony to Congress at the end of last month (see here and here), Tai reported that this goal had been dramatically modified – and probably in effect abandoned. She stated that after decades of negotiations (including during the Biden term), “real change remains elusive” aside from instances in which China’s compliance with its trade obligations “fit its own interests.”

Therefore, the Biden team had decided to “turn the page on the old playbook with China, which focused on changing its behavior. Instead, our strategy must expand beyond only pressing China for change and include vigorously defending our values and economic interests from the negative impacts of the PRC’s unfair economic policies and practices.”

In terms of day-to-day policy, Tai’s revelation doesn’t change much. As I – and many others have noted – the Biden administration had decided from the get-go to keep in place nearly every single dollar of the Trump tariffs (see the New York Times interview linked above), and continued – and in numerous cases expanded (see, e.g., here) – its predecessors’ sanctions and export controls targeting Chinese tech entities.

Instead, the new strategy’s impact will mainly be felt going forward. With the last two American presidents now having determined that handling the China economic challenge through diplomacy has been futile, their successors will face enormous difficulties returning to engagement-heavy strategies without unmistakable – and enduring – evidence of greatly improved Chinese behavior. That is, Trump’s focus on punishment and protection are here to stay for the foreseeable future. And indeed, forgetting about changing China through a “Phase Two” agreement, and concentrating trade-wise on shielding the U.S. economy from Beijing’s predation using Phase One’s de facto tariff-ing authority, are exactly the courses I recommended in the mid-2020 article linked above.

The only major remaining uncertainty in U.S. economic policy toward China entails how far the decoupling of the two economies will go. Tai said a week ago that the administration’s goals didn’t include “stopping trade or trade divorce.” But that’s a straw man. The real question entails how far economic disengagement will proceed. And given the administration’s aforementioned tariff and sanctions moves, and related objectives both of creating more secure supply chains in economically and strategically important industries, and boosting domestic manufacturing output through increasing government procurement of U.S.-made products and investments to improve the competitiveness of U.S.-based industry, the answer — encouragingly — seems “pretty darned far.” 

Advertisement

(What’s Left of) Our Economy: Lots to Like in Biden’s (Trump-y) China Trade Policy Vision

Tags

allies, Biden, Biden administration, Center for Strategic and International Studies, China, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, decoupling, Donald Trump, economics, economists, exports, Katherine Tai, managed trade, multilateralism, multinational companies, Phase One, tariffs, U.S. Trade Representative, USTR, Wall Street, World Trade Organization, WTO, {What's Left of) Our Economy

Despite my strong interest in U.S.-China trade issues, I’d originally decided not to post on chief U.S. trade official Katherine Tai’s Monday speech on the Biden administration’s strategy for these challenges for two main reasons. One, her remarks were widely (and reasonably well) covered by major news organizations; and two, the big news they revealed was, as expected (including by me), making clear that the Trump administration’s sweeping and often steep tariffs on Chinese goods would remain in place for the foreseeable future.

Since then, however, the think tank that hosted the event (the Washington, D.C.-based Center for Strategic and International Studies) has posted not only her presentation as delivered, but the transcript of a lengthy Q&A session that followed. And those exchanges, along with passages from her speech that have received little attention, shed lots of new light on a great many other significantly promising points about the Biden China trade approach that Tai only touched on in her speech, and one-and-a-half points that are still worrisome.

The grounds for encouragement?

First, Tai made an especially forceful and pointed argument that the pre-Trump China trade and broader economic policies (which Biden strongly supported as a Senator and as Barack Obama’s Vice President) had been a major failure. In her prepared text’s words, “For too long, China’s lack of adherence to global trading norms has undercut the prosperity of Americans and others around the world.”

In addition, China’s predatory policies (my term, not hers)

“have reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based democratic economies. And that is why we need to take a new, holistic, and pragmatic approach in our relationship with China that can actually further our strategic and economic objectives for the near term and the long term.”

In other words, after decades of promises and hopes that commerce between the two countries would become a winning proposition for both (as mainstream economists also insisted), the Biden administration has officially declared such interactions to have been win-lose – with the United States and especially its workers the losers.

Indeed, Tai wasn’t even close to being finished horrifying the economic mainstream or the corporate China Lobby. She pointedly refused to call Trump’s January, 2020 Phase One trade deal a “failure,” and declared that even though it “did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy,” it ”is useful and has had value in stabilizing the relationship.”

In addition, going forward, Tai told her audience that more trade Trump-ism was likely. She indicated that the administration might approve a new Trump-like initiative to impose new tariffs to enforce Phase One more effectively. She also poured decidedly cool water on the idea that the President would move to join a Pacific Basin trade deal (now called the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” or CPTPP) touted as a means of containing China, but nixed by Trump partly because its rules created wide open backdoors for goods with lots of China content.

More broadly, Tai signalled that the United States was now perfectly fine with dispensing with free trade orthodoxy in practice much of the time in favor of “managed trade” – which a questioner defined correctly as “governments setting targets [for exports and imports] and trying to achieve them” and which was embodied in China’s Phase One commitments (not yet satisfied) to boost buys of U.S. imports. ‘

Tai depicted such arrangements as having “evolved out of a frustration with the previous model. [which she described as “let’s seek market access and then, you know, let the chips fall where they may.”] And so the question that I bring to this issue that you’ve presented is not ideologically how do I feel about it, but what is actually going to present results and what is actually going to be effective.”

And she plainly portrayed them in a much more favorable light than the notion of relying on the World Trade Organization (WTO), which trade policy traditionalists have fetishized as the globe’s best hope for creating an international trade system that promoted free and fair competition through a set of detailed rules and regulations, along with a supposedly impartial legal system for resolving disputes.

In Tai’s words, however, “We brought 27 cases against China, including some I litigated myself, and through collaboration with our allies. We secured victories in every case that was decided. Still, even when China changed the specific practices we challenged, it did not change the underlying policies, and meaningful reforms by China remained elusive.”

As a result, Tai said, “as much as we will continue to invest and commit and try to innovate in terms of being a member at the WTO and seeking to bring reform to the WTO…we also need to be agile and to be open-minded and to think outside of the box with respect to how we can be more effective in addressing the concerns that we really have been struggling to address with China on trade.”

In addition,Tai also surely shocked her audience (and yours truly – pleasantly) by openly questioning the decades-long bipartisan push to increase U.S. exports to China:

“I think that part of the story of the U.S.-China trade relationship over these recent few decades has been about this thirst on the part of our business sector in particular for increased market access to China. In business sector I include our agriculture sector, obviously. You know, I think along the traditional lines of the way we’ve thought about trade and how benefits come from trade, it has been very focused on securing market access. I think that what we’ve seen is our traditional approach to trade has run into a lot of realities that are today causing us to open our eyes and think about, is what we’re looking for more liberalized trade and just more trade or are we looking for smarter and more resilient trade?”

With China facing mounting economic troubles due largely to its Ponzi-like real estate housing system and a stagnating population, that’s a valuable warning for American producers who still expect China to keep growing spectacularly and to offer gigantic, ever-expanding new markets for their goods and services.

Nonetheless, Tai specified that the Biden administration isn’t on board with widespread calls to decouple America’s economy from China’s:

“I think that the concern, maybe the question is whether or not the United States and China need to stop trading with each other. I don’t think that’s a realistic outcome in terms of our global economy. I think that the issue perhaps is, what are the goals we’re looking for in a kind of re-coupling? How can we have a trade relationship with China where we are occupying strong and robust positions within the supply chain and that there is a trade that’s happening as opposed to a dependency?”

I understand Tai’s reluctance to embrace decoupling openly. It runs too great a risk of making life in China for U.S. companies doing entirely ordinary, unobjectionable business there even harder than it’s already become, especially lately. But the reference to “re-coupling” struck me as totally unnecessary – and as unrealistic as the notion that Washington is skilled enough to preserve just as many connections to make sure that bilateral commerce does serve mutual legitimate interests, but not so many as to maintain or worsen dangerous dependencies on China, or increase its economic and technological power.

And Tai’s speech lauded the Biden aim of dealing with the China economic and technology challenges in concert with U.S. allies way too enthusiastically. As I’ve written, my prime worry has always been that priotizing this kind of multilateral approach will force the US to accept lowest-common-denominator measures that will always be sorely inadequate because so many of these allies depend so heavily on trading with and investing in China.

Nevertheless, Tai declared that “vitally, we will work closely with our allies and likeminded partners towards building truly fair international trade that enables healthy competition,” and even called this approach “the core of our strategy” on China and trade generally.

As I’ve written, U.S. Trade Representatives are rarely the last word on trade policy. So whatever Tai’s just said, I’m still not ruling out the possibility that the President will use some pretext (promises of climate change progress?) to bring back the bad old days. Certainly, that’s what Wall Street and multinational businesses want. But these Tai observations have made such a U-turn much more difficult politically. And if you agree with my cynical view that politics (mainly due to growing American public hostility toward China) and not principle is what’s produced Mr. Biden’s unexpectedly Trumpy positions toward the People’s Republic, that ain’t bean bag.

(What’s Left of) Our Economy: Whose Trade Representative?

Tags

America First, Biden, Donald Trump, Katherine Tai, middle class, positive sumn, supply chainsi, tariffs, Trade, trade talks, U.S. Trade rep, USTR, zero sum, {What's Left of) Our Economy

Since her appointment as President Biden’s U.S. Trade Representative (USTR), Katherine Tai has become known as a master of the “noncommittal interview style,” steadfastly remaining in the realm of lofty generalities “but never getting pinned down on specifics.” I’d add that this description has characterized her other public statements, too.

Last week, though, appearing on Marketplace radio, Tai appeared to let her guard slip – and in ways indicated that even moderate American liberals like her have turned as thoroughly, and in my view, worrisomely, ambivalent about the main purposes of U.S. trade policy as their more progressive counterparts.

As I’ve written, by the late-1990s, this ambivalence has long been a major obstacle to turning U.S. trade policy from an exercise in offshoring that had been devastating the productive heart of the American economy and its workforce into a drive to boost domestic employment and production. For although progressives agreed that trade policies were harming American workers, they also tended to claim that it had been harming their third world counterparts, too – which was critically important given the tight focus of pre-Trump U.S. Presidents and their allies in Congress on expanding trade with very low income countries.

As a result, their critiques of trade policy were continually debunked by convincing evidence that the era of rapid globalization had actually been a major boon to much of the “global south.” (See, e.g., here.) And they continually refused to acknowledge that, at least for some undefinable period of time, changing trade flows to channel more of the benefits to Americans would entail hard choices that came at the expense of developing countries. Not surprisingly, it wasn’t until a full-throated champion of America First-oriented trade policies emerged as a major force in American politics that public pressure finally brought the offshoring-focus of trade diplomacy to a resounding halt.

To their credit, early on in the last presidential campaign, candidate Joe Biden and his key aides recognized the importance of prioritizing of domestic interests – including worker interests – and their endorsement of Trump-ian economic nationalism has been most recently expressed in the President’s promise that “In everything we do, we will aim to make life better, safer, and easier for working families in America.”

The Biden administration’s record to date has been more mixed than its words – e.g., retaining every single dollar of Donald Trump’s China tariffs so far, but defining secure supply chains as including production nodes that are not only overseas, but locaed in many countries that haven’t remotely earned the designation of “trusted suppliers.” But it’s nonetheless revealing that even this position has some prominent globalization cheerleaders accusing the new President of neanderthal protectionism.

That’s why it was so surprising to see this exchange in Tai’s Marketplace interview:

[INTERVIEWER] “…l want to go back to that speech from a week or so ago that you gave about trade policy and environmental policy. And one of the things you aid was: ‘My job is to push for trade reforms that translate into meaningful change in the lives of farmers, ranchers, factory workers, parents and children, not just in the United States, but around the world.’ And I wonder whether you thought twice before you wrote that and you said that because to some in this country, that’s going to clang a little bit.

“Tai: Really, why is that?

[INTERVIEWER]: “Well, I think at this moment where we are a deeply polarized society, the idea that the United States trade representative would be worrying about workers, farmers, children and students in countries other than the United States might be problematic for some.

“Tai:  We don’t exist in a vacuum. And, you know, all you need to do is take a look at a map. We are all inextricably linked to each other and we are sharing this planet as a home in terms of climate and COVID-19. These are collective challenges, and we only get through them if we can get through it collectively.”

As I wrote previously, the point to keep in mind is not that global win-win solutions to trade problems are impossible to conceive, or should be ruled out of hand. The point to keep in mind is that someone who starts out in a negotiation over trade (which will be a big part of Tai’s job) or anything else assuming the best of all possible worlds doesn’t seem likely to recognize when the inevitable real world complications start intruding.

This kumbaya attitude shapes up as a tactical disaster for another reason, too: Tai can be sure that any international interlocutors will be focused like the proverbial laser beam on maximizing their own countries, not on achieving some hypothetical positive sum result. If that’s her starting point, it’s all too easy to imagine that she’d accept a final outcome much closer to other countries’ preferences than to America’s.

To be clear, I’m not troubled by Tai’s remark because I think she’ll be making any of the big calls on U.S. trade policy.  USTRs rarely do, and she simply doesn’t have the stature or the personal connection with the President.  I’m troubled by her remark because Tai’s many years as a Congressional staffer have surely taught her never to say anything that clashes with her boss’s official line. If as careful a bureaucratic operator as the new USTR doesn’t seem to understand that she’s the Trade Representative of the United States, not the world at large, maybe Mr. Biden needs to be reminded of his real job definition, too?

(What’s Left of) Our Economy: Biden Trade Policy’s Off to a Flying Stop

Tags

China, inflation, Joe Biden, Katherine Tai, National Foreign Trade Council, offshoring lobby, tariffs, Trade, trade policy, trade war, Trump, U.S. Trade Representative, USTR, {What's Left of) Our Economy

Any minimally intelligent discussion of the incoming Biden administration’s trade policy and the role of his pick for U.S. Trade Representative (USTR) needs to recognize at the start that Katherine Tai will make exactly none of the big calls on trade.

That’s not a knock on her specifically. But as nearly always the case (and the Trump administration was a major exception, as its trade envoy, Robert Lighthizer, was a prime author of specific, central initiatives), these decisions will be made way above her pay grade – almost certainly by the President himself or Treasury Secretary-designate Janet Yellen, or a combination of those two, along with the various special interests they need to please.

Even so, Tai will play an important message-bearing and policy defense role, especially in testimony before Congress, and in this vein, her first effort following her brief remarks following her nomination announcement got the Biden team’s record off to a start just ever so slightly above “same-old-stuff” level.

Most noteworthy, puzzling, and perhaps revealing was the choice of audience: the National Foreign Trade Council. For with its membership consisting of U.S. multinationals and big firms from highly protectionist economies like Germany and Japan, it’s long been a pillar of the corporate Offshoring Lobby.

Sure, many of these members have started to voice complaints about their China-related troubles in particular. But they’ve made equally clear that they have no clue as to realistic ways of solving them. In fact, their dogged opposition to unilateral, Trump-like U.S. tariffs as remedies (which have sharply curbed the access to the American market of their overseas production, and the availability of massively subsidized Chinese inputs for their domestic operations) has rendered them big obstacles to the remaining overhaul national trade policy needs.

It’s also true that everything known about Biden’s own long record on the matter, and his own statements during the campaign, makes clear the incoherence – and just as likely cynicism – of his own current stated approach (notably, stressing the imperative of working with – deeply conflicted and chronically fence-sitting — American allies to counter China’s trade and broader economic abuses).

Even so, given the pains Biden took to portray himself as “Middle Class Joe” whose trade initiatives and related decisions would prioritize American worker interests above all else, it needs to be asked why, from a purely political standpoint, his choice for trade negotiator chose an audience whose members have long pushed for exactly the opposite. Why not appear before a union audience?

Just as bizarre, Tai emphasized to these died-in-the-wool offshorers that “The President-Elect’s vision is to implement a worker-centered trade policy. What this means in practice is that U.S. trade policy must benefit regular Americans, communities, and workers.”

What did she and her superiors (who of course cleared her remarks) hope to accomplish with this declaration? Agreement? Or even the beginnings of theological conversion?

Weirder still: Her observation that “people are not just consumers — they are also workers, and wage earners” and, more pointedly, that when thinking about trade, it’s crucial to emphasize that “Americans don’t just benefit from lower prices and greater selection in shops and markets.” After all, her boss emphasized throughout the campaign that “President Trump may think he’s being tough on China. All that he’s delivered as a consequence of that is American farmers, manufacturers and consumers losing and paying more.”

It’s of course possible that Biden and his team could figure out a way to shield the entire U.S. domestic economy, from Chinese – and other countries’ – predatory practices without reducing the price competitiveness of these imports in the U.S. market. But it’s suggestive at the very least that after months on the campaign trail – and many decades in public life – the President-Elect has offered no specifics. And Tai’s speech did nothing to clear up this mystery.

(Not that there’s been any sign of noteworthy trade-related inflation during the “trade war” period – as shown, e.g., here – but one way greatly to boost the odds that tariffs don’t send prices upward would be to accompany trade restrictions with greater anti-trust enforcement that increases domestic competition, as I’ve argued here.)      

Tai advertised her and the broader Biden trade policy points as part of the former Vice President’s promise to “Build Back Better.” So far, though, the most charitable description of these is actually more like “Pretend More Assertively.”

Our So-Called Foreign Policy: Biden Choices Signal a “What, Me Worry?” China Policy

Tags

alliances, allies, Antony Blinken, BlackRock, Brian Deese, China, decoupling, Jake Sullivan, Janet Yellen, Joe Biden, Katherine Tai, Lloyd Austin, multilateralism, national security, Our So-Called Foreign Policy, Robert Lighthizer, sanctions, tariffs, tech war, Trade, trade war, transition, Trump, U.S. Trade Representative, USTR, Wall Street

Apparent President-elect Biden so far is sending a message about his China policy that’s unmistakably bad news for any American believing that the People’s Republic is a major threat to the nation’s security and prosperity – which should be every American. The message: “I’d rather not think about it much.”

In some limited senses, and for the very near future, the impact could be positive. Principally, although he blasted President Trump’s steep, sweeping tariffs on imports from China as disastrously counter-productive for the entire U.S. economy – consumers and producers alike – he’s stated that he won’t lift them right away. Presumably, he’ll also hesitate to remove the various Trump sanctions that have so gravely damaged the tech entities whose activities bolster China’s military strength and foreign espionage capabilities, along with new Trump administration restrictions on these Chinese entities’ ability to list on U.S. stock exchanges.

Looking further down the road, however, if personnel, as widely believed, is indeed policy, Biden’s choices for Cabinet officials and other senior aides to date strongly indicate that his views on the subject haven’t changed much from this past May, when he ridiculed the idea that China not only is going to “eat our lunch,” but represented any kind of serious competitor at all. In fact, in two ways, his choices suggest that his take on China remains the same as that which produced a long record of China coddling.

First, none of his top economic or foreign policy picks boasts any significant China-related experience – or even much interest in China. Like Biden himself, Secretary of State-designate Antony Blinken is an indiscriminate worshipper of U.S. security alliances who views China’s rise overwhelmingly as a development that has tragically and even dangerously given Mr. Trump and other America Firsters an excuse to weaken these arrangements by making allies’ China positions an acid test of their value. In addition, he’s pushed the red herring that the Trump policies amount to a foolhardy, unrealistic attempt at complete decoupling of the U.S. and Chinese economies.

As for the apparently incoming White House national security adviser, Jake J. Sullivan – who served as Biden’s chief foreign policy adviser during his Vice Presidential years – he shares the same alliances-uber-alles perspective on China as Biden and Blinken, and is on record as late as 2017 as criticizing the Trump administration for “failing to strike a middle course” on China – “one that encourages China’s rise in a manner consistent with an open, fair, rules-based, regional order.” I’m still waiting for someone to ask Sullivan why he believes that mission evidently remained unacccomplished after the Obama administration had eight years to try carrying it out.

On the defense policy front, Biden has chosen to head the Pentagon former General Lloyd Austin whose main top-level experience was in fighting Jihadist terrorists in the Middle East, not dealing with a near-superpower like China. That’s no doubt why Biden failed even to mention China when introducing Austin and listing the issues on which he’d need to focus – an omission worrisomely noted by the U.S. Asia allies the apparent President-elect is counting on to help America cope more effectively with whatever problems he thinks China does pose.

As for the Biden economic picks, Treasury Secretary and former Fed Chair Janet Yellen has expressed little interest in China or trade policy more broadly during her long career in public service. (See here for a description of some of her relatively few remarks on the subject.) His choice to head the National Economic Council, Brian Deese, has been working for the Wall Street investment giant, BlackRock, Inc. – which like most of its peers has long hoped to win Beijing’s permission to compete for a slice of the potentially huge China financial services market. But his focus seems to have been environmentally sustainable investments, and his own Obama administration experience centered on climate change.

One theoretical exception is Katherine Tai, evidently slated to become Biden’s U.S. Trade Representative (USTR). Both as a former lawyer at the trade agency  and in her current position as a senior staff member at the House Ways and Means Committee, she boasts vast China experience.

But history teaches clearly that the big American trade policy decisions, like handling China, are almost never made at the USTR level. Mr. Trump’s trade envoy, Robert Lighthizer, was a major exception, and his prominence stemmed from the President’s unfamiliarity as an outsider with the specific policy levers that have needed to be pulled to engineer the big China trade and broader economic policy turnaround sought by Mr. Trump. So expect Tai to be a foot soldier, nothing more.

The cumulative effect of this China vacuum at the top of the likely incoming administration creates the second way in which Biden’s seems to reflect a lack of urgency on the subject: It signals that there will be no China point person in his administration. It’s true that reports have appeared that the apparent President-elect will appoint an Asia policy czar. But more than a week after they’ve been posted, nothing further has been heard.

All of which suggests that, by default, China policy will be made by the alliance festishers Blinken and Sullivan. And if their stated multilateralist impulses do indeed dominate, the result will be basically a U.S. China policy outsourced to Brussels (headquarters of the European Union), and the capitals of Asia. As I’ve written previously, many of these allies have profited greatly from the pre-Trump U.S. and global China trade policy status quo, and their leaders are hoping for a return to this type of world as soon as possible. And it’s no coincidence that’s the kind of world Joe Biden was happy to help preside over during his last White House job.  

(What’s Left of) Our Economy: You Call This a China Trade Deal?

Tags

agriculture, China, dispute resolution, enforcement, NAFTA, offshoring lobby, Phase One, tariffs, Trade, trade deal, Trump, U.S. Trade Representative, USMCA, USTR, WTO, {What's Left of) Our Economy

OK, let’s assume that something deserving the name “U.S.-China trade deal” has been reached – even one dubbed “Phase One” or “preliminary.” Deep doubts would remain justified about whether it can possibly serve American interests.

For example, where’s even an English-language version? There’s nothing new about such agreements coming out in both English and Chinese, raising thorny questions about ensuring that key terms in both languages are commonly understood – on top of all the towering issues raised by China’s long record of flouting official commitments it’s made. But if something worth announcing officially on both sides has actually been produced, why is the most detailed description so far this statement from the U.S. Trade Representative’s (USTR) office?

Why does this statement contain plenty of specifics about U.S. tariff reductions (except for the actual dates by which American levies on imports from China will be cut) but no specifics about China’s own pledges? In that vein, no useful accounts have been released of what China will actually buy from the United States (though it’s interesting that President Trump has included manufactures on the list – not simply agricultural products and other commodities), and by when the Chinese will buy these goods. Special bonus – shortly after noon, the President said he “thinks” China will hit $50 billion in U.S. agriculture imports. Over what time period? Heaven only knows.

Don’t forget – such import increases will be the most easily described and verifiable aspects of any agreement. So maybe since these terms are still being left so vague, it shouldn’t be surprising that there’s absolutely nothing from the administration so far about “structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.”

Even the Trump administration has viewed these issues – which lie at the heart of the intertwined U.S.-China technology and national security rivalries, as well as of the purely economic rivalry – as so challenging to address diplomatically that rapid progress can’t be made. Why else would Mr. Trump have settled for now for seeking a shorter term, interim agreement?

If genuine breakthroughs have been made that will strengthen and safeguard and enrich Americans, terrific. But if so, what’s the point of couching them in generalities? And if not, what’s the point in claiming major progress?

Also completely, and crucially, omitted are any indications of what’s actually meant by “a strong dispute resolution system that ensures prompt implementation and enforcement.” In particular, if the United States doesn’t insist on the last word in judging Chinese compliance and meting out punishment when agreement terms are broken, then this deal will work no better on behalf of U.S.-based producers (employers and employees alike) than previous arrangements under the World Trade Organization (WTO) and the old North American Free Trade Agreement (NAFTA) that pleased only the corporate Offshoring Lobby, its hired guns in Washington, D.C., and the Mainstream Media journalists who have long parroted its talking points.

So if the United States is not recognized as sole judge, jury, and court of appeals when dealing with Chinese compliance, history teaches that will be the case that the agreement literally will be worthless.

The politics of this U.S. announcement are puzzling in the extreme as well. China’s economy obviously has taken a much greater trade war hit than America’s – of course mainly because it’s so much more trade-dependent. Beijing’s dictators are struggling to contain unrest in Hong Kong. The new U.S.-Mexico-Canada Agreement (USMCA), which will replace NAFTA, will offset some of the China-related losses suffered by the agriculture-heavy states so critical to Mr. Trump’s reelection hopes. The polls show unmistakably that the President is winning the impeachment battle in the court of public opinion. And even before the Congressional Democrats’ efforts to remove him from office began bogging down, their party’s slate of presidential candidates had started looking so weak to so many in Democratic ranks that a gaggle of newcomers jumped into the primary campaign on stunningly short notice. 

In short, this is no time for Mr. Trump to reach any deal with China – whatever Phase it’s called. In fact, it’s the time for the President to keep the pressure on (because whatever weakens the Chinese economy ipso facto benefits the United States these days). And since a deal that promotes real U.S. interests remains impossible to reach because of verification obstacles, it’s also time for Mr. Trump to start signaling to American business that major tariffs on China are here to stay for the time being, and may even increase down the road. That’s one way to eliminate any uncertainty employers are feeling about doing business with China that will increase the odds of building a new, improved bilateral relationship – not restore its epically failed predecessor.

The only reasons for optimism on the U.S.-China trade front right now? Just two that I can identify, but they’re hardly trivial. First, for all the reasons cited above, the supposed Phase One deal is clearly still so tentative and, frankly, so flimsy, that it’s likely to fall apart sooner rather than later. Second, U.S.-China decoupling will continue – precisely because the closely related technology and national security gulf dividing the two countries can’t be bridged diplomatically, and because even previously gullible U.S.-owned companies in numerous industries will now be thinking twice about exposing themselves, or exposing themselves further, to the whims of China’s utterly lawless and unreliable government. 

(What’s Left of) Our Economy: Why Pre-Trump Trade Policies Really Were America-Last Policies

Tags

diplomacy, Finbar Bermingham, globalists, negotiations, South China Morning Post, Trade, Trump, U.S. Trade Representative, USTR, {What's Left of) Our Economy

I’ve often struggled to decide whether America’s dreadful trade policies over recent decades have stemmed more from incompetence (as President Trump sometimes charges) or corruption in the form of politicians and diplomats shilling for offshoring business interests or the often economically clueless national security community (as Mr. Trump also sometimes charges).

A report from Hong Kong’s South China Morning Post (which still publishes mostly reliable material even though the city is now part of China) didn’t settle the matter for me. But it once more valuably reminded that their country’s national interests have rarely topped U.S. trade negotiators’ priority lists. Why else would these officials have allowed themselves to be duped by the series of transparently cynical ruses and deceptions from their foreign interlocutors that they themselves describe in the article?

Correspondent Finbar Bermingham makes clear that his aim was to show how major “complications that can arise from issues of language, interpretation and translation during negotiations” and that as a result, “trying to iron out arguments over words, phrases or even grammar can be ‘worse than pulling teeth.’” Instead, what he (and the “experienced negotiators” he interviewed) demonstrated was how easily they could be snookered – and how thoroughly they either forgot or ignored America’s decisive leverage in all these dealings.

Take Elena Bryan. According to this 17-year veteran of trade negotiations with the Office of the U.S. Trade Representative (USTR), “it’s very hard to enforce anything under the Chinese because their system is both complicated and relatively opaque, and there aren’t that many Mandarin speakers around that have the requisite technical trade and legal skills.”

But with its new tariff hike threat (which has the Chinese scurrying back to Washington to try to restart talks), the Trump administration has just suggested how easily this allegedly formidable challenge can be overcome: Tell the Chinese to get serious – and work with standard English – or they get higher tariffs imposed on their goods heading for the U.S. market that their economy desperately needs to produce adequate growth and employment.

Ditto for the claim by Bruce Hirsh, “assistant USTR for Japan and South Korea under former US president Barack Obama,” that “Haggling over individual words was 90 per cent of the game. How much of that was a language and translation issue and how much of that was just the actual negotiation over the substance is hard to say.”

Indeed, if anything, Hirsh’s position – and that of his boss – was even less acceptable, since both Japan and South Korea have even less economic leverage over the United States than China, and they also depend on American nuclear guarantees for their defense. As soon as they started haggling over words, Hirsh should have walked out of the room and urged his President to lower the tariff boom.

Nicole Bevins Collinson, “a textiles negotiator for the USTR in the 1990s,” inadvertently let readers know just how pathetic such excuse-making can become:

“The issue of commas and where they’re placed, and whether you use the words ‘and’ or ‘or’ were always big sticking issues. The other big thing was ‘may’ and ‘shall’. In some languages, those words are the same – or maybe they would just tell us that. What we thought was ‘shall’, they translated into ‘may’ and we were told we can’t use the word ‘may.’”

No wonder the American textile industry has struggled so mightily in the face of often predatory global competition and grew only about a fifth as fast in real terms as U.S. manufacturing overall during the 1990s.

Another type of nonsense-enabling was served up by Jean Heilman Grier, “who between the USTR and US Department of Commerce, spent 25 years negotiating and advising on trade agreements for the US government.”

Grier told Bermingham that “The Japanese…prefer more ‘conceptual’ text. ‘They don’t want the exactitude that we’re often looking for. So that’s where you can kind of get into problems with some of the translations.’” Talk about a great stalling tactic, especially when the folks on the other side of the table seem too happy to play along.

About the kindest interpretation that can be put on this manifest incompetence is that these diplomatic veterans valued reaching any kind of deal, even a bad one, over risking a no-deal outcome. In the words of Mary Ryckman, “who spent 30 years with USTR negotiating a host of trade agreements,” “You have the ‘art of the being vague’ and you agree to be vague because you want to come to an agreement.”

Ryckman’s point underscores a critical truth about American trade diplomacy – the diplomats quoted above and most of their colleagues in the pre-Trump decades weren’t making trade policy. They were simply carrying out orders from the globalists above. So Ryckman, for example, can’t be blamed for the “agreement or bust” imperative she followed. That blunder was on the President at the time.

But the South China Morning Post piece also indicates that none of the officials quoted had the slightest problem with their instructions, even though they all but guaranteed failure from the U.S. standpoint, at least defined commonsense-ically. Despite decades of experience, and of clear failure to achieve the stated goals of their efforts (usually meaningful foreign market opening), they apparently were content to play the dupe. Whether witting or unwitting, though matters much more when it comes to the intentions and records of their superiors than to their own.

(What’s Left of) Our Economy: The Alternative Facts Behind America’s China Trade Policy

Tags

alternative facts, Bill Clinton, Charlene Barshefsky, China, exports, imports, Long Yongtu, manufacturing, offshoring, services, The Wall Street Journal, Trade, trade law, U.S. Trade Representative, USTR, World Trade Organization, WTO, {What's Left of) Our Economy

After reading her interview with The Wall Street Journal, it’s hard to tell whether Clinton-era chief U.S. negotiator Charlene Barshefsky is mainly clueless or mainly arrogant. In other words, is Barshefsky oblivious to how badly she (and colleagues) botched the challenge of admitting China into the World Trade Organization (WTO)? Or is she confident that the bipartisan American economic policy establishment remains so strongly wed to this epic failure that her reputation and current cushy job as a leading trade lawyer won’t suffer in the slightest even when it’s scope is made unmistakable?

Most disturbing, nothing could be clearer from the interview – in which she was joined by one of her former top Chinese counterparts – that her views on the WTO deal and those of Beijing are as close, as the Chinese like to say, “as lips and teeth.” The only significant difference: then Chinese vice commerce minister Long Yongtu denies that his country’s economic reform efforts have gone off the rails in recent years. Barshefsky insists that China “has stopped the process of economic reform and opening and that, instead, has put in place a spate of measures that are zero sum. They’re highly mercantilist and discriminate against U.S. and foreign companies.”

That’s nice to hear. But this claim also underscores how completely blindsided Barshefsky, the rest of the Clinton administration, and the rest of the powers-that-be in American government, business, and academe were by an about-face in a country with a recent history of political instability and course changes, and no record of viewing trade as a positive-sum game or economic openness as a crucial objective in and of itself.

Barshefsky also demonstrates her belief that the phony promises that fueled the Clinton administration’s successful drive to secure China’s WTO entry still hold water – at least with the high and mighty. For example, according to Barshefksy, “The U.S. didn’t alter its trade regime, nor did any other country alter its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.” But as she surely knows, WTO membership won for China substantial immunity from the national trade law system the United States historically had used to safeguard its legitimate trade interests unilaterally. Once China entered the WTO, Washington’s internationally recognized responses to China’s predatory trade practices largely depended on the assent of the WTO membership – which has been numerically dominated by economies that were major users of Chinese style protectionism.

Barshefsky continues to claim that the safeguards she negotiated with China were adequate to protect domestic industries – at least temporarily – from surges of Chinese imports. The only problem, she contends, is that these mechanisms were “”almost never used.” What Barshefksy omitted, however, was that the big U.S.-based multinational manufacturers that lobbied so lavishly and successfully on behalf of China’s entry were also offshoring production and jobs like crazy to China largely to supply the America market much more cheaply. Limiting America’s imports from China, especially from factories with which they were linked, was the last thing they wanted.

According to Barshefsky, the post-WTO ballooning of the U.S. goods trade deficit with China can be brushed aside because “we have a substantial services surplus with China.” It’s too bad she didn’t provide any numbers, but not at all surprising – since that surplus last year was only about a tenth as big ($37.4 billion) as the merchandise shortfall ($347 billion). Moreover, the manufacturing-heavy nature of this merchandise deficit – which is increasingly comprised of advanced manufactures – should concern all Americans.

And finally, Barshefsky repeated the widely expressed canard that “the trade deficit is a function of macroeconomic factors. Principally, the difference between what Americans save, which is nada, and investment, which is plentiful.” But the relationship between national trade balances and savings rates is simply a mathematical identity – which by definition says “nada” about causation. Indeed, there are plenty of reasons to suppose that, the more the trade deficit grows, the lower the savings rate is bound to become.

Yet interviewing Barshefsky has at least performed one public service. It reminds Americans that alternative facts began shaping the nation’s politics and policy long before the last presidential election.

(What’s Left of) Our Economy: What’s Really Wrong with Obama’s Aluminum Trade Case

Tags

aluminum, Fareed Zakaria, Obama, overcapacity, subsidies, Trade, Trump, U.S. Trade Representative, USTR, Washington Post, World Trade Organization, WTO, {What's Left of) Our Economy

What’s most laughable about the Obama administration’s new World Trade Organization (WTO) challenge against China’s subsidies to aluminum producers isn’t the decision to file the complaint with just over a week left in office (although admittedly that’s pretty laughable). What’s most laughable is the continuing belief that the WTO is an effective instrument for fighting such predatory trade practices.

After all, as claimed by a U.S. industry leader in a statement cited by the U.S. Trade Representative’s (USTR) office itself, “China’s subsidies have done enormous damage to the U.S. and global aluminum industries.” USTR’s press release, moreover, goes on to present data making clear that the PRC’s state-supported overcapacity building dates back to at least 2007, and that private sector American rivals that need profits have been forced to respond to the resulting global price crash by dramatically slashing both production and capacity.

It’s bad enough, as USTR admits, that President Obama’s main response until yesterday was completely ineffectual “engagement” with Beijing in various official bilateral talk shops. Mr. Obama allegedly even brought up the subject with Chinese president Xi Jinping last September. The results, according to USTR? “[W]hile China has expressed a willingness to continue talking about the excess aluminum capacity situation….China has not been willing to take concrete steps to address it.”

And now, with the number of aluminum smelter in the United States having fallen from 14 to five since 2011 – “with only one operating at full capacity” – the administration has decided to begin a WTO process that could take 15 months (counting appeals) to complete and, if Washington wins, authorize countervailing tariffs. Further, if Beijing loses and promises to end its aluminum transgressions, the United States will be faced with the probably insuperable challenge of monitoring compliance by China’s highly secretive bureaucracies.

This morning, Washington Post and CNN pundit Fareed Zakaria wrote that “Chinese elites” he’s recently met with are “remarkably sanguine about [President-elect] Trump” and his attacks on Beijing’s trade-related economic practices. If the incoming president relies heavily on the WTO to fight China’s predation, their complacency will be amply justified.

(What’s Left of) Our Economy: Looks Like Obama Aide’s Conceding a Major TPP Argument

Tags

AIIB, Asian Infrastructure Investment Bank, China, exports, free trade agreements, Free Trade Area of the Asia Pacific, GDP, imports, Michael Froman, Obama, Regional Comprehensive Economic Partnership, TPP, Trade, Trans-Pacific Partnership, U.S. Trade Representative, USTR, {What's Left of) Our Economy

Compelling evidence just appeared that the Obama administration is conceding that many critics are right to call its Pacific Rim trade deal is a nothing-burger economically – at best. It came in the form of U.S. Trade Representative Michael Froman’s official comment on the new, Congressionally mandated U.S. International Trade Commission (USITC) projection of the deal’s economic effects.

The USITC did a good enough job pouring cold water on the notion that the Trans-Pacific Partnership (TPP) would be a major boon for the American economy. As has been widely reported, the Commission forecasts that the impact on the nation’s growth and real incomes is statistically insignificant.

These findings logically challenge critics’ descriptions of the deal as disastrous. But at the same time, the USITC assumes full compliance with the TPP’s terms by the eleven non-U.S. signatories. As I’ve explained, even if Washington performed a dramatic about-face and treated trade monitoring and enforcement as a priority, logistical and political barriers mock the belief that the United States can hold its TPP partners’ feet to the fire.

Indeed partly because its methodology can’t adequately take such problems into account, the USITC has a long and sorry track record of greatly understating the net harm to the American economy from new trade agreements.

But Ambassador Froman’s strategy for handling the USITC report strongly indicates that President Obama has decided to gloss over the claim that his aides did a great job at the TPP talks. For the U.S. Trade Representative evidently has decided to change the subject.

Froman did make some token stabs at portraying the TPP’s terms as economic winners for Americans. For example, he took the time-honored official Washington tack of touting export projections while ignoring predictions for imports (which globally would be greater according to the USITC) and thus the net economic impact of trade flows.

Yet Froman quickly exited this specifics-oriented economic debate and pointedly contended that “What cannot be quantified in this study or any other is the cost to American leadership if we fail to pass TPP and allow China to carve up the Asia-Pacific through their own trade agreement.”  

Unfortunately for him and the president, this position puts them on no stronger ground. On the one hand, after all, Froman is implicitly conceding that any set of TPP provisions to which the United States agrees is better than none because simply signing the treaty creates an American seat at the Asia-Pacific rule-writing table. On the other hand, as I’ve repeatedly noted, expectations that such American participation will create even longer-term benefits is laughable for at least four main reasons.

First, most of America’s main regional allies – and most major TPP signatories – are already taking part in those Chinese initiatives that Froman describes as so hostile to American interests. These initiatives include not only China’s new Asia infrastructure bank, but its Regional Comprehensive Economic Partnership – its explicit counterpart trade agreement.

Second, the United States itself has given its blessing to another Chinese-backed regional trade scheme – a proposed Free Trade Area of the Asia Pacific.

Third, these Chinese measures have attracted such regional support largely because so many East Asian countries in particular (as opposed to TPP’s Western Hemisphere members) pursue the kinds of Chinese-style trade and broader economic policies that the administration has long noted have undercut U.S. Domestic economic interests. Regardless of the piece of paper they have signed, the last thing these neo-mercantilist powers want to see is an enforceable set of “rules for trade” that reflect America’s more free-market-oriented values and practices.

Fourth, because U.S. and Asian definitions of acceptable and unacceptable economic behavior contrast so strikingly, even sitting at the TPP table can’t possibly guarantee pro-American results – unless the TPP’s dispute-resolution mechanism breaks with all recent precedents and awards outsized authority to the United States, as opposed to operating on consensual, or one-country, one-vote, principles.

Not that Froman or the rest of the administration are running out of arguments yet. They could refocus the debate on the national security claim that TPP is essential for preserving and/or strengthening America’s geopolitical position in the Asia-Pacific region, especially as China’s power and influence surge (even though this administration has done little at most to stem the flow of defense-related technology and valuable economic wherewithal to that same China). They could also warn that President Obama’s international credibility will be undercut if TPP is rejected (even though his presidency is nearly over).

Wouldn’t it be much better if Mr. Obama and his aides just threw in the towel, admitted that despite decades of experience, neither Democratic nor Republican administration’s have figured out how to negotiate trade agreements that work for America on net, and if the next president spent time and resources developing a learning curve instead?