Limited US-China trade deal likely at mid-November APEC summit

Correspondent L.C.’s weekly trade report
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The US and China appear to be proceeding smoothly toward finalizing the recently-agreed “phase one” trade deal so that it can be endorsed by their two leaders when they meet at the November 16th-17th Asia-Pacific Economic Cooperation (APEC) summit in Chile. China also this week passed a new law aimed at improving the environment for private business.

But US-Chinese skirmishing continues. Vice President Mike Pence gave a hard-line speech on Beijing’s human rights violations. China meanwhile is requesting World Trade Organization (WTO) authorization to impose $2.4 billion in punitive tariffs on the US. This is the almost-final act in a case that began in 2012, when China complained to the WTO that the US improperly imposed countervailing duties (CVDs) on an array of Chinese exports. Washington will likely contest the amount and the finding that it hasn’t complied with WTO recommendations. Beijing acknowledges US compliance efforts but claims the US still hasn’t fully complied.

While many WTO members question the way the US determines unfair subsidies, in this case the US had good grounds for criticizing the WTO. The US argues that it is inconsistent for the WTO to rule – correctly – that Chinese government assistance to state-owned companies constitutes unfair subsidies but rule – incorrectly – that the non-market prices arbitrarily set by Chinese bureaucrats must be used in determining CVD rates.

On a more positive note, China announced on October 23^rd the adoption of a new law aimed at ending discrimination against foreign companies, assuring fair competition, and strengthening legal protections to make it easier for them to do business in China. The law’s seventy-two provisions supposedly mean that foreign companies will be treated like domestic companies, even in public procurement bidding. The new rules also beef up punishment for intellectual property rights infringement, and they stabilize foreign exchange operations.

The changes seem in part directed at placating foreign criticism but also come as Chinese growth is slowing and Beijing has a strong incentive to attract more foreign investment. But there is skepticism about the new law. Observers wonder how likely it is that state-owned enterprises will treat foreign firms equitably, given how opaque Chinese government regulations and practices are.

Vice-President Pence weighs in

Amid the happy-talk from US officials regarding relations with China, Vice President Mike Pence gave a speech at the Wilson Center on October 24^th that delivered a severe assessment of Beijing’s human rights abuses. He was supposed to deliver the speech last June, but the president held him back because it would have come just before the president’s meeting with Xi at the G20 summit. President Trump assured Xi in June that the US would hold off on criticizing China’s actions in Hong Kong while trade negotiations were going on.

In his Wilson Center speech, Pence said that Washington is not looking for a decoupling of the US and Chinese economies nor for “open confrontation” but instead for engaging with China. But Pence didn’t steer away from the hot button issues — decrying Chinese persecution of the Uighurs and Christians in China and expressing support for the Hong Kong protesters. He also denounced the NBA and Nike for silencing free speech in order not to risk their business in China. In addition to human rights abuses, Pence cited as unacceptable China’s

• intellectual property (IP) theft,
• refusal to block shipments of fentanyl to the US,
• export of its surveillance technology, and
• abuses of its Belt & Road Initiative.

The Vice President also repeated a claim the President has made: “We rebuilt China over the past 25 years… but those days are over.” That was seen by some analysts as offensive to China. It not only discounts the achievements of Chinese citizens but also the fact that China’s advances came as a result not of US aid but of free market reforms that the US promoted and which brought tremendous gains to the population that were not at the expense of US prosperity but contributed to it. However, the Pence speech was not the occasion for nuance but was intended to show that the Trump Administration had not gone soft on China despite seeking a trade agreement.

Still, there are concerns among US businesses that such rhetoric and the continuing US criticisms of China are stoking Chinese nationalism in a way that is turning the population away from seeking US products and brands. That this dynamic coincides with the rising ability of Chinese companies to domestically produce goods of high enough quality to compete with American imports adds to the concern over dwindling sales to the world’s biggest consumer market no matter how much access might be won through trade negotiations.