* Commerce Secretary Gina Raimondo’s questionable optimism on US-China trade relations;
* Taiwan, the UK, and China want “in” to the CPTPP — everyone, it seems, but the US;
* One (mostly) positive development: the new US-EU Technology and Trade Council to meet in Pittsburgh.
The weekly trade report with L.C.
Huawei CFO Meng Wanzhou deplaned in Shenzhen on September 25th after almost three years of being detained in Canada at the US’s request. Arriving to a hero’s welcome, she thanked the Chinese Communist Party for her release and declared, “I will soon throw myself into the arms of my great motherland.”
The case was a key irritant in US-China-Canada relations, and there are aspects of its outcome that could make the US appear weak – some are already making that charge. Removal of the extradition request has been a key Chinese demand for improving bilateral relations. Yet there are also negative strategic and economic implications for China.
Among other negatives, Beijing’s immediate release of two Canadians held on spurious spying charges showed that they had been arrested to gain leverage in the Meng case, providing new evidence of China’s willingness to use bullying to force the hand of other countries and creating a new reason for foreign companies and businessmen, already alarmed over the Xi Jinping regime’s new crackdown on the private sector, to worry about operating in China, even regarding their personal safety. Also, treating Meng like a hero — following the immense pressure exerted by the Chinese government to deny the US allegations and demand her release — suggest that the US has been right about Huawei: it is closely connected to the regime and is probably operating on its behalf, including using its technology for espionage.
Meng’s alleged criminal acts
Washington originally wanted Meng extradited to stand trial on charges of criminal behavior – bank fraud, wire fraud, and conspiracy – including export violations involving Huawei’s sales to Iran of items with US components that are under US export controls. She allegedly used fraud to evade US sanctions on Iran by hiding from HSBC Bank the connection between Huawei and Skycom, a company operating in Iran that Huawei allegedly controlled.
The case had moved through the Canadian courts and was awaiting the judge’s decision on the US’s extradition request, which has now been withdrawn.
The US charges were well-known and Meng was caught in December 2018 only because she (carelessly) stopped over in Canada while flying elsewhere. Canada honored its extradition treaty with the US and detained her. She was allowed to spend her detention at the home she maintains in Vancouver. China’s immediate retaliation was against Canada, not the US. Beijing imprisoned two Canadian citizens in China, Michael Spavor, a businessman, and Michael Kovrig, a former diplomat, charging them with espionage and detaining them for almost three years. China denied the arrests were related to the Meng case, but the claim was widely disbelieved. Significant international anger and support developed for the arrested Canadians.
While the charges against Meng weren’t withdrawn, the US Justice Department entered an agreement with her on September 24th to defer prosecution until late 2022, with the expectation that the charges will be dropped. Nonetheless, the Justice Department hasn’t dropped its case against Huawei, and the agreement did involve Meng’s admission of violations.
China response was hostage-taking
The fact that Spavor and Kovrig were immediately released was taken as proving that the charges against them were concocted as leverage for Meng’s release, a claim Beijing had denied for almost three years. This was not a great outcome for Beijing. While Canadians certainly had mixed feelings about their country being caught up in the US-China clash over Huawei, they were greatly angered by the seizure of their citizens, and public opinion in Canada about China and about engagement with China has turned markedly negative as a result of Spavor and Kovrig’s mistreatment.
Other countries – and their businessmen – have also taken note, and distrust of China as well as a sense of elevated risk of doing business in China has mounted. While some analysts criticized the deal for going too easy on China and signaling to it that hostage-taking works, the prospect that Beijing may detain private citizens for political or strategic ends could hurt foreign investment in China and discourage other foreign engagement.
Criticism of the Meng release
The arrangement with Meng and her release is expected to ease US-China and Canada-China tensions. But a Wall Street Journal editorial was not so sanguine. In a September 27th editorial headlined “China’s Hostage Triumph,” the newspaper wrote that “Westerners working in China are officially on notice. You could be arrested on trumped up charges at any time and used as hostages to promote Communist Party interests. That’s the message from the humiliating U.S. surrender to China’s hostage diplomacy in the case of Huawei chief financial officer Meng Wanzhou.”
Commerce Secretary Gina Polyanna Raimondo
Another ill-timed administration move to make nicey-nice with China was signaled by an interview that Commerce Secretary Gina Raimondo gave to the Wall Street Journal shortly before Mrs. Meng’s release. During the interview, the Journal reports, “Ms. Raimondo said she plans to lead delegations of U.S. chief executives overseas, including to China, to hunt for business and discuss longstanding trade issues, though nothing has yet been put on the calendar.”
The interviewer noted that her comments were received with skepticism by China watchers: “Bill Reinsch, a Commerce Department official during the Clinton administration and now at the Center for Strategic and International Studies, said, ‘Raimondo thinks her job is to paper over the decoupling and separation [between the U.S. and China] and try to suggest there is a positive path forward.’”
The Meng release and Ms. Raimondo’s Pollyannaish interview are especially ill-timed given China’s recent rolling out of a tactic designed to thwart Western attempts to protect its patents and intellectual property against Chinese theft. Chinese courts are now issuing injunctions banning such legal actions against Chinese corporations anywhere in the world.
Everyone but the US
Another instance of US self-sabotage is its continued absence from the CPTPP. It seems that everyone but the US wants in. One week following China’s submitting its official application to join the CPTPP, Taiwan last week did the same. That sets up a situation that most Asian countries had hoped to avoid: having to choose between China and the West.
Despite the US not being a CPTPP member, the US Trade Representative commented that “We would expect that China’s non-market trade practices and use of economic coercion against other countries would factor into CPTPP parties’ evaluation of China as a potential candidate for accession.”
China meanwhile warned against letting Taiwan in, with its Foreign Ministry spox telling reporters, “We firmly oppose any official contacts between Taiwan and other countries, and Taiwan’s access to any official agreements or organizations.” Taiwan’s Foreign Ministry responded, saying Beijing has no right to object to Taiwan’s CPTPP application and doesn’t represent the Taiwanese on the international stage. But China continued its heavy-handed response – apparently confirming Taiwan’s charge that it’s an “arch bully” – by massing nuclear-capable bombers in Taiwan’s air space a day after Taiwan’s application. China is already riled up about major countries led by the US, Japan, and the EU moving closer to Taiwan.
Pressure to join
There continues to be tremendous pressure on the Biden administration to seek to join the agreement, and possible Chinese entry poses a threat to US plans for raising its influence in the region. This week the chairman and ranking Republican on the Senate Finance Trade Subcommittee – Sens. Tom Carper (D-DE) and John Cornyn (R-TX) – reacted to China’s accession bid by saying on September 20th,
“We have been warning about China’s subtle yet deliberate moves to join the CPTPP – the very trade pact crafted to counter China’s trade influence that the US mistakenly walked away from. And last week, we saw them take an affirmative step in that troubling direction…. it’s clear that China is not waiting to assert itself in the region. The US cannot afford to continue waiting… we must get our seat back at the table to re-engage our Asia-Pacific allies in trade.”
There haven’t been signals from the Biden administration that it is contemplating seeking to enter the CPTPP any time soon. But if it chose to do so, it would probably have an easier time than other prospective candidates. The Obama administration – with Joe Biden as vice president – had concluded negotiations to join the TPP before President Trump withdrew. The CPTPP terms of membership are still largely the same.
China’s application puts the US administration on the spot. If it wants to re-engage with the pact, it should act quickly. While it’s true that under a provision of the USMCA, the US could demand that Mexico and/or Canada oppose China’s entry, that would be a blunt move that could anger others in the bloc and might even fail.
Importance of Taiwan’s entry
Taiwan says that if China were to accede first, it could move to keep Taiwan out. On September 23rd Taiwan announced that it had submitted its application to New Zealand. While New Zealand is the CPTPP repository, Japan is the lead country for new accessions — it heads the CPTPP Commission. Recently, members of Japan’s governing LDP supported Taiwan’s CPTPP accession, and this week, Japanese officials similarly voiced support. Foreign Minister Toshimitsu Motegi welcomed Taiwan’s application, saying “Taiwan is an important partner that has close economic relations” with Japan. Regarding China’s accession bid, Economic Revitalization Minister Yasutoshi Nishimura said, “We need to watch carefully whether China is ready to meet high-standard CPTPP rules.”
Taiwan is important for the supply chains of most of the present CPTPP members, particularly as the leading supplier of semiconductors. It doesn’t wield economic and military threats against CPTPP members the way China does. And with its wealthy consumer market open to CPTPP member exports, as well as its being a significant industrial power, there would be many benefits to its accession.
China is not liberalizing
Many think Beijing’s recent heavy-handed moves against private companies, large corporations, and online activity indicate that it is veering away from economic and trade liberalization and moving instead in the direction of market-distorting central control and industrial policy that clash with CPTPP requirements.
Officials from both Japan and Australia have already warned that any new entrant would have to have, as Australian Trade Minister Dan Tehan put it, “a track record of compliance with its commitments in the WTO and existing trade agreements,” a track on which China’s record is arguably poor. Canberra has taken China to WTO dispute settlement for slapping barriers on its exports, which it claims also violate the 6-year-old Australia-China Free Trade Agreement. Unless China backs off its economic coercion against Australia, it may find at least one country opposing its CPTPP bid.
The 11 CPTPP countries are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The UK is already discussing accession with CPTPP members, and many other countries, led by Thailand and South Korea, have expressed varying degrees of interest.
US-EU Trade and Technology Council to meet
Meanwhile, the Biden administration is putting its minimal-energy trade diplomacy to some use in the newly formed US-EU Trade and Technology Council, which “will likely span trade, competition, technology, and foreign policy,” according to the Peterson Institute for International Economics (PIEE). Senior officials from both countries will be meeting in Pittsburgh on September 29th. Despite the recent media focus on economic relations between China and the USA, few realize how deep the US-EU economic ties are. The Journal reports:
“Europe and the U.S. are each the top foreign employer on the other’s soil and each accounts for roughly 60% of all foreign direct investment in the other’s economy, according to the Commerce Department. U.S. direct investment into Europe grew faster than into any other major region, despite the pandemic. U.S. companies’ overseas subsidiaries sell more in Europe than any other foreign market and their profit set a record in 2019, before coronavirus hit, according to analysis by the U.S.-EU Chamber of Commerce.”
The downside of the meeting will be the two major economic powers’ expected coordination of green policies, which will weaken both of them with respect to China and Russia.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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