Katherine Tai’s CSIS speech on US-China trade policy continues the Trump tariffs and might add more. But the US and EU could settle their Section 232 steel and aluminum dispute by a November deadline; meanwhile, they have created a Trade and Technology Council to coordinate export control policies and tech standards.
The September 27th-October 3rd, 2021 trade report with L.C.
US Trade Representative Katherine Tai gave a widely anticipated talk on US-China trade relations at the Center for Strategic and International Studies (CSIS) in Washington, DC on Monday, September 4th. During the nine months since the new administration’s accession, Ms. Tai, much to the disappointment of questioners, had deferred discussion of policy on China and other trade topics until, she said, the administration had completed its study.
Nine months is a long time for important policy questions to fester. Business decisions and investments crucially hinge on a foundation of certainty as to which way trade and tariff decisions will be heading under the new administration. The Tai talk at CSIS was expected to end the uncertainty. The speech she gave, however, turned out to be a big nothing burger, an hour of diplo-speak whose nearest approach to guidance was a defense of the Trump tariffs and the hint of more to come. Ms. Tai breathed not a word of the most important step that the administration could be taking to shore up US interests in the Indo-Pacific – joining the trade organization of its allies in the Pacific, the CPTPP, except to mutter how things had changed in the six years since the TPP, the CPTPP’s predecessor, had rolled out. Well, duh!
Meanwhile, Taiwan, a strategic US ally and CPTPP applicant, is facing daily hostile armada-size incursions into its airspace by China’s air force, including by planes capable of carrying nuclear bombs. US accession to the CPTPP and endorsement of Taiwan’s membership in the CPTPP would be the best possible opener to renewed US-Chinese trade talks, rather than a conversation with China about its fulfillment or non-fulfillment of the soon-to-expire Phase One pact. But the second approach was the one that Ms. Tai announced to the CSIS audience.
US-EU Trade and Technology Council (TTC)
Trade relations with Europe might be on a more promising path. The EU’s top officials dealing with trade issues were in the US this week – European Commission Executive Vice Presidents Valdis Dombrovskis (also Trade Commissioner) and Margrethe Vestager (also Competition Commissioner).
The high-profile feature of their visit was the inaugural meeting of the US-EU Trade & Technology Council, but in separate meetings with US officials they were set to discuss how to deal with the Section 232 steel tariffs (25%) and aluminum tariffs (10%) and the EU counter-tariffs that the two sides agreed in June would be resolved this year.
Since then, the timeline has accelerated, with a November 1st deadline set in August by the chief negotiators on Section 232 for both sides – Dombrovskis and Commerce Secretary Gina Raimondo. Getting an agreement by that date would allow a month to finalize the technical details so it could take effect on December 1st, the target date for implementation. That’s not an arbitrary deadline. The EU’s suspension of a planned doubling of retaliatory tariffs to 50% ends in November, so both sides want a deal in place by then.
Section 232 dispute still unresolve
While the TTC’s outcome was a lengthy agreement to cooperate and collaborate across a wide range of trade and tech issues and was thus considered a success, the Section 232 issue was not resolved and those talks didn’t publicly report progress.
Raimondo, speaking on September 28th at the Economic Club of Washington, declared that settling the Section 232 dispute with the EU is one of her top priorities, noting that the duties “have created tremendous tension” with the EU. In the past Raimondo has justified the duties and even suggested they have been beneficial for the US economy, but this week’s comments reinforce the view that the administration intends to reach a deal with the EU to wind them down.
The fact that metals prices have been rising and that China’s excess steel and aluminum capacity may be in the process of being trimmed back – due to a direct Beijing effort and to the impact of China’s current energy crisis – could take some of the pressure off the Biden administration from steel companies and workers. Also possibly relieving the pressure somewhat, domestic steel may get a significant increase in demand if the bipartisan infrastructure bill that passed the Senate is approved by the House as well. It would fund major projects made with steel and aluminum and also include tightened Buy American provisions requiring that the metal come from domestic sources.
France plays dog in the manger
While the TTC outcome was hailed as a significant new start for the troubled trans-Atlantic relationship, it was watered down from what the US had wanted, largely due to disagreement within the EU. That was, by all accounts, largely due to French resistance. Paris was so angered by the sudden formation of the AUKUS strategic alliance that led to the scuttling of its submarine deal with Australia that it had at first pushed for the TTC meeting to be cancelled. It relented on that demand but insisted the TTC shouldn’t be so broad in scope that it would crimp Europe’s self-reliance and ability to act on its own.
France was especially insistent, according to well-placed sources, on not having the TTC pledge long-term cooperation on development of advanced semiconductors. Paris wants to develop its own manufacturing capability.
Several EU countries, led by Germany and France, also didn’t want the TTC to appear to be mainly focused on confronting China or to be part of an effort to decouple the Western economies from China. According to former EU Trade Commissioner Cecilia Malmstrom, the Europeans “don’t want this to turn into a club where they only discuss China.”
Europe also opposes China’s statist policies, just not in name
The US was more open to using the new group as an explicit counterweight and challenge to Beijing’s high-tech plans. The Biden administration sees the TTC as part of the network of alliances – in particular the Quad and AUKUS – that it is building with allies to challenge China in various ways. Brussels, and individual European capitals, are signaling they aren’t looking in this direction.
Despite European qualms, the lengthy Joint Statement and fact sheet released after the meeting, while not mentioning China by name, included many clauses obviously aimed at China, e.g., the US and EU would cooperate to fight such things as trade-distorting practices, industrial subsidies and state-owned enterprises, forced labor, forced tech transfers, and cyber threats.
Joint US-EU export controls and standards cooperation possible
In the areas of investment screening and export controls, both the US and EU have been tightening their regimes with a view to blocking Chinese espionage, trade secret theft, and cyber threats. The call to cooperate by exchanging information on potential threats and trends and best practices and supporting multilateral export control regimes appears to be a logical next step and might not be controversial within the US or EU. Dombrovskis highlighted export controls as an area for cooperation, saying that in advance of the next TTC meeting, “We will particularly concentrate on export controls and see the extent we can arrive at a coordinated” US-EU approach.”
Also notable (from the Joint Statement) is the goal to cooperate on standards for cutting-edge tech: “The EU and the US aim to identify opportunities for collaborative proactive action and to defend our common interests in international standards activities for critical and emerging technologies.”
Need for WTO recharging
Dombrovskis had more to say on the WTO in a September 27th speech at Johns Hopkins University in Washington. Saying we need WTO “reform, not ruin,” he said the EU shares US concerns that the institution isn’t equipped to deal with some current issues like subsidies, forced tech transfer, and statist policies. He called for a reform process to be set in motion at the WTO’s 12th Ministerial Conference later this year, saying it could be a subject for US-EU cooperation. He also said the EU is ready to work with the US on reaching agreement on outcomes for MC12, including in the talks on e-commerce, fisheries subsidies, and the pandemic. “I believe that with strong engagement and joint leadership, we can really reinvigorate the WTO,” he said. If that happens, it would be a welcome development to the WTO’s director-general, Ngozi Okonjo-Iweala, who is said to be fed up with the low level of WTO functioning at present and considering tendering her resignation.
If Ms. Tai wants to make her mark on trade policy rather than being a polite, personable water-carrier for counter-productive trade policies, getting the WTO functional again through a joint US-EU reform proposal and getting the US back into the CP-TPP should be her two foremost agenda items. We’re not optimistic about the second item. Will smart Republicans dare to campaign on these two goals, or will they go down with the Trump protectionist policies that Ms. Tai and the Biden administration seem determined to pursue?
L.C. reports on trade matters for business as well as Founders Broadsheet.
10/5/2021: ambiguous sentence corrected.
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