U.S. Trade Representative Katherine Tai largely embraced the Trump administration’s muscular approach, while indicating possible consideration of shifts on some specific tariff issues, during her first formal statement of the Biden administration’s trade policy on China on Oct 4.
While indicating that the Biden team might consider lifting some tariffs on imports of goods from China, Tai emphasized that China has never played the game of globalization according to the rules. She pointed out that in industries from steel to solar panels, huge subsidies and preferences for state-owned enterprises have unfairly shifted comparative advantage and enormous quantities of production to China, while destroying these industries in free world, free market countries like the United States, Japan, Australia, and the European Union.
Tai added that efforts to change China’s trade practices and policies, or to halt its mercantilist subsidies of targeted high-tech industries, have not been effective in the past and are unlikely to become more so in the future. Indeed, she effectively explained that China does not want to become and will not become a “responsible stakeholder in the liberal, rules-based global order,” a transformation that former U.S. Trade Representative Robert Zoellick once predicted would occur. That, says Tai, is just not going to happen. In effect, she is saying that the whole idea is purely wishful thinking.
In suggesting that some tariffs on Chinese imports might be adjusted, Tai offered some possible concessions to specific industries importing specific products from China. But she immediately hardened her tone by emphasizing that the Biden administration is seeking fair treatment for U.S. workers and U.S.-based production. Tai emphasized that she and her team would not take any measures that might prove hurtful to U.S. workers and U.S.-based producers. She also spoke of the need to revitalize production in the United States and to promote U.S.-based leadership in a wide variety of key, high-tech industries.
Indeed, in some ways Ambassador Tai sounded more like a Chinese official than an American one. This is an indication of the high degree to which U.S. trade and globalization policy has shifted from its conventional free trade base from 1948 to 2018. She made it clear that there will be no return to that base so far as U.S. trade with China is concerned.
However, what Tai did not do was to spell out in any detail what the dimensions, objectives, and strategies of the Biden administration trade policy will be. Will it promote production in the United States? Will it use tariffs, subsidies, or both to promote such production? Will it attempt to entice foreign corporations to invest in and produce in the United States or focus only on U.S. corporations? Will it impose certain disciplines on U.S. companies currently manufacturing in China? Would Apple, for example, be classified as a foreign company because all its production takes place in China? Would Apple CEO Tim Cook be required to declare himself a foreign agent when testifying before the U.S. Congress? None of this was clarified by Tai and will become the focus of much attention going forward.
Perhaps the easiest path forward for Washington would be to copy that of China. With its Made in China 2025 program aimed at assuring high-tech leadership by Chinese corporations, Beijing has established a model that would be relatively easy to copy. Indeed, Washington is already copying it in some ways. The Biden administration is preparing to provide funding to assist Intel in expanding production of semiconductors in Arizona and is also working with Taiwan’s TSMC to establish some of its semiconductor production in Arizona as well. Expansion of this kind of policy to other industries included in the Made in China 2025 group would be logical and relatively easy to do.
The Chinese model also includes “buy China” whenever it produces a certain targeted product such as robotics, semiconductors, and telecommunications gear. This, too, would be an easy and logical practice to copy.
In summary, it is clear that the old days of U.S. administrations talking endlessly with China and trying to persuade it to “play by the rules” are over. American leaders are now convinced that China is simply not going to behave as desired or expected. It is also clear that the United States is increasingly going to play like China, especially in advanced technology areas. It is the details of how Washington is going to do this that have not yet been presented. But they surely will be in the near future.
