The weekly trade report with L.C.
During his annual testimony to Congress on June 17th, USTR Robert Lighthizer was put on the defensive by questions citing former National Security Advisor John Bolton’s newly published book. The Bolton book charges that the President’s interest in a trade deal with China was driven more by 2020 re-election concerns than demanding Chinese reforms.
Lighthizer spoke before the House Ways & Means Committee in the morning and the Senate Finance Committee in the afternoon. According to Bolton’s book, when the President met with Xi Jinping at last June’s G20 Summit in Osaka, the President
stunningly, turned the conversation to the coming US presidential election, alluding to China’s economic capability to affect the ongoing campaigns, pleading with Xi to ensure he’d win. He stressed the importance of farmers and increased Chinese purchases of soybeans and wheat in the electoral outcome…. Trump then raised the [US-China] negotiations’ collapse in May, urging China to return to the positions it had retracted.
Electoral issues uppermost?
Later in the trade discussion, Trump “again returned to importuning Xi and China to buy as many American farm products as they could. Then, they would see if a deal were possible” (after Trump agreed not to impose any new tariffs).
This report meshes with that of other observers and analysts who have similarly claimed that President Trump never cared about the structural issues or about pushing China to reform through the trade negotiations but looked at trade only from the perspective of enhancing his electoral prospects.
Lighthizer called the account “Absolutely untrue. It never happened. I was there. I have no recollection of that ever happening.”
Wyden skeptical of Lighthizer’s explanation
Senate Finance Committee ranking Democrat Ron Wyden (R-OR), not convinced, told Lighthizer he would send him written questions on the Osaka meeting. He wants answers back within a week.
Lighthizer, in his earlier prepared testimony, asserted that the US did indeed win structural commitments from Beijing. The President, Lighthizer stated, “directly confronted China’s abusive trade practices through substantial tariffs, resulting in the groundbreaking Phase One trade agreement [that] secured enforceable commitments from China to cease its abusive trade practices – including intellectual property theft, forced technology transfer, discriminatory regulations, and currency manipulation. It also committed China to significantly increase its purchases of US goods and services” and established “a strong dispute resolution system.”
Structural reforms yet to be seen
Nothing new in these claims, but little has materialized thus far in terms of China making the identified reforms.
President Trump gave an interview on July 19th to Axios. He denied Bolton’s report: “I don’t go around saying, ‘Oh, help me with my election.’ Why would I say that?… And I certainly wouldn’t say it anyway, but I certainly wouldn’t say it in a room full of people.”
Bolton’s Uyghur charges
The Bolton book contained another disturbing assertion about Trump’s relations with Xi, pertaining to the Uyghur persecution in Xinjiang. Bolton says that the interpreter who was in a private meeting during the Osaka summit told him that Trump told Xi he “should go ahead with building the [concentration] camps, which he thought was exactly the right thing to do.
Axios asked the President about this Bolton allegation, to which he is reported to have responded
that he held off on imposing Treasury sanctions against Chinese officials involved with the Xinjiang mass detention camps because doing so would have interfered with his trade deal with Beijing…. [W]e were in the middle of a major trade deal….I made a great deal, $250 billion potentially worth of purchases…[B]y the way, they’re buying a lot, you probably have seen. And when you’re in the middle of a negotiation and then all of a sudden you start throwing additional sanctions on. I put tariffs on China, which are far worse than any sanction you can think of.
The same day the Bolton book charges came out, President Trump signed the Uyghur Human Rights Policy Act. It passed Congress with little opposition.
Decoupling from China?
Lighthizer was asked about decoupling from China. He replied, “This issue of decoupling is a complicated one. Do I think supply chains should be brought back [from everywhere]? Yes.” And from China? “Yes.” But: “Do I think you can sit down and decouple the US economy from the Chinese economy? No, I think that was a policy option years ago. I don’t think it’s a policy – a reasonable policy option – at this point.”
The President disagreed. He tweeted the next day: “It was not Amb. Lighthizer’s fault that perhaps I didn’t make myself clear, but the US certainly does maintain a policy option, under various conditions, of a complete decoupling from China.”
Will Senate learn of confidentiality provision?
Lighthizer also came under heavy questioning about the Phase One trade deal’s details. Wyden pressed him on whether the confidentiality provision of the new enforcement mechanism in the agreement meant that the Senate Finance Committee won’t receive information about enforcement operations. Lighthizer tried to assure him that the committee will be fully informed, but the senator asked him to put the assurance in writing.
Lighthizer, in defending Phase One and asserting that China is trying to comply, denounced a tool for tracking China’s purchases of US exports set up by Chad Bown of the PIIE. It has been finding that China is falling so far short of what it committed to buy that it is unlikely to get close to the targets this year. Bown’s methodology, Lighthizer charged, is “childish” and “failed.” Legislators asked Lighthizer to keep them informed of China’s progress.
Concerns about Phase One follow-through
On July 16th, a group of 192 agricultural associations sent a letter to President Trump urging him to assure the Phase One deal continues to be implemented because of the significance of the Chinese market. “At this especially challenging time, rural America needs one of its greatest potential export markets for food and agricultural products.”
Secretary of State Mike Pompeo had a long meeting in Hawaii with China’s top diplomat Yang Jiechi. Soon after, sources reported that China is making plans for major purchases of US soybeans, corn, ethanol, and other products through state-owned companies. Pompeo said Yang “recommitted to completing… all of the obligations of Phase One.”
US agricultural subsidies violating WTO?
The President has tried to rescue US farmers not just by opening the Chinese market but by subsidizing them with revenue earned through the Section 301 tariffs on Chinese goods. That tactic is coming under increasing fire as a violation of the US’s WTO agricultural commitments. The amount involved greatly exceeds the limit on “amber box” trade-distorting agricultural subsidies that the US is allowed. US trading partners including the EU, China, Canada, Australia, and Brazil have raised this issue in WTO committees.
The US-based Environmental Working Group released a statement saying they calculated the value of the subsidies and find they breach the limit. While it does not appear that any WTO member is preparing to file a formal complaint, this is another point of tension with trading partners, whose own farmers suffer from the price and market-distorting effects of US subsidies.
China the problem? Or everyone else’s tariffs?
In Lighthizer’s prepared congressional testimony, the WTO also got a lot of attention. Lighthizer raised the possibility of tariff reform that would allow the US to hike tariffs in a search for reciprocity with trading partners.
The Trump Administration has spoken of a tariff reset in the past and has even openly endorsed the idea of reciprocal tariffs – country-by-country and product-by-product – in the US Reciprocal Trade Act which the White House authored. So far, the Act hasn’t gone anywhere in Congress.
Now, Lighthizer told Congress, “the US will… seek a broader reset at the WTO. Currently, outdated tariff determinations are locked in place…. As a result, many countries with large and developed economies maintain very high bound tariff rates, far above those levied by the US. The US must ensure that tariffs reflect current economic realities.”
But seeking to raise overall US tariff levels undercuts the administration’s claim that China is the real problem for the international economy. If the administration really saw things that way, it wouldn’t be talking about slapping higher tariffs on – and thus antagonizing – all US trading partners. Instead, it would be working with them to curb China’s abuses.
De minimis threshold to be lowered?
On the de minimis threshold — the threshold value below which small individual packages imported into the US don’t have to pay duties — Lighthizer testified that the White House is considering lowering it. He noted that it “far exceeds” the thresholds of other countries and said China and other trading partners are likely exploiting it to avoid paying duties. Lowering the de minimis threshold would raise the prices consumers pay for some imported products.
China drops market-economy status demand
Meanwhile, China has withdrawn the WTO case it filed in 2016 against the EU for not granting it market-economy status. It is assumed that China will also not pursue its parallel complaint against the refusal by the US to grant it market-economy status, which was filed after its complaint against the EU. The Chinese withdrawal is thus a victory not only for Brussels but also the US.
Perhaps most important, this is the issue on which Lighthizer warned three years ago that the fate of the WTO might rest. As he told a congressional committee at that time, “a bad decision with respect to the non-market economy status of China… would be cataclysmic for the WTO.”
UK will prioritize joining TPP
Lastly, the UK announced on July 16th that it will prioritize joining the TPP-11 (now called the CPTPP) agreement. International Trade Secretary Liz Truss released a statement saying,
Joining CPTPP is strategically important for the UK in the long and short-term. It will help support an industrial revival by boosting trade and investment in key industries, diversify our trade so we are less vulnerable to political and economic shocks, and turn the UK into a global hub for businesses and investors wanting to trade with the rest of the world.
Some Canadian sources immediately welcomed the move, noting that bringing the UK into the accord will help current members further diversify their trade away from the US. Negotiating to accede to TPP would also give London a bit more leverage in its transition talks with the EU.
As one of his first acts after inauguration, President Trump withdrew the US from the TPP. This hurt US trade and security interests in the Pacific and doubtless occasioned great rejoicing in Zhongnanhai.
L.C. reports on trade matters for business as well as Founders Broadsheet.
Leave a Reply