Biden’s China Dilemma: How to Enforce Trump’s Trade Deal
The Biden administration must decide whether to enforce a Trump-era trade deal that has not fulfilled its promise.,
Biden’s China Dilemma: How to Enforce Trump’s Trade Deal
The Biden administration must decide whether to enforce a Trump-era trade deal that has not fulfilled its promise.
In a call last month with President Xi Jinping of China, President Biden underscored the importance of China fulfilling the commitments.Credit…Doug Mills/The New York Times
WASHINGTON — When he assumed the White House, President Biden promised to take a different approach to China than his predecessor, saying that the Trump administration’s trade war had hurt American farmers and consumers, and failed to address significant concerns about China’s economic practices.
But nearly a year into his presidency, Mr. Biden is stuck with ensuring that China lives up to the promises it made to President Donald J. Trump in a trade deal signed in January 2020.
China is expected to fall far short of the trade deal’s target for purchasing an additional $200 billion of American products, including energy, services, food and manufactured goods, over the course of 2020 and 2021.
According to tracking by Chad P. Bown of the Peterson Institute for International Economics, China is on pace to fulfill only 60 percent of the purchasing commitments it made in the trade deal by the end of 2022, after buying fewer airplanes, automobiles, crude oil and other American goods than anticipated.
Chinese officials, in conversations with their American counterparts, have cited the global pandemic, factory stoppages and shipping disruptions as reasons for the shortfalls, according to people familiar with the talks. It is unclear how receptive the Biden administration is to that argument or whether the president will take action against China for not living up to its end of the deal.
The text of the trade deal calls for further consultations if an “unforeseeable event outside the control of the parties delays a party from timely complying with its obligations.” It also allows the United States to take “remedial measures,” like imposing tariffs, if China violates the agreement and the governments cannot reach a consensus on how to move forward.
But many U.S. businesses and consumer groups have been calling for the Biden administration to reduce the tariffs that Mr. Trump imposed on Chinese goods, which have driven up costs for American companies and consumers. The United States already has tariffs on roughly two-thirds of Chinese imports. Expanding tariffs to other goods could place a heavier burden on households and businesses at a time when prices are already rising.
In a discussion with reporters last month, Katherine Tai, the U.S. Trade Representative, said that China’s “performance hasn’t been perfect, so what do we do about it?”
“That’s the million dollar question. That’s the whole point of engaging with China right now.”
“We’re working on it,” she added.
The decision illustrates the perils for Mr. Biden of succeeding a president with a penchant for one-upmanship and a love of big round numbers.
Mr. Trump received political credit, at least from his supporters, for signing the deal, which was arguably the most economic concessions the United States had secured from the Chinese government since it joined the World Trade Organization 20 years ago. But it is Mr. Biden and his deputies who now must decide the path forward — and incur the political risk — when the deal’s terms are not fully met.
Liu Pengyu, a spokesman for the Chinese Embassy, declined to discuss the negotiations, but said in a statement that the economic and trade relationships between the two countries were “essentially mutually beneficial.”
“Issues in bilateral economic and trade relations should be properly dealt with in the spirit of mutual respect and equal-footed consultation,” he added.
Trade experts say it’s not particularly surprising that China has failed to meet such ambitious purchasing targets. According to Mr. Trump’s own telling, some of the targets in his “big beautiful monster” of a trade deal with China were basically made up.
Discussing the origin of the agricultural targets in a cabinet meeting in October 2019, Mr. Trump said he had pushed for China to commit to between $60 billion and $70 billion a year in farm purchases, before settling on a figure of between $40 billion and $50 billion.
“My people had $20 billion done, and I said, ‘I want more.’ They said, ‘The farmers can’t handle it.’ I said, ‘Tell them to buy larger tractors. It’s very simple,'” Mr. Trump said to laughter.
“I want the farmers to come tell me, ‘Sir, we can’t produce that much,'” he added.
When Mr. Trump signed the trade deal with China in January 2020, those estimates became enshrined as the word of the U.S. government. And though Mr. Biden and his deputies have criticized the trade deal for failing to address many of the most pressing trade issues that the United States has with China, they have since promised to uphold it.
In a call last month with President Xi Jinping of China, President Biden underscored the importance of China fulfilling the commitments, and his desire for “real progress” in conversations between Ms. Tai and her counterpart, Vice Premier Liu He, a senior administration official said.
Both Chinese and American officials have stressed that purchasing commitments are just one component of the trade deal. The deal also contained promises to streamline China’s import process for U.S. farm goods, ramp up penalties for intellectual property infringement and ease barriers for American financial firms doing business in China, among other reforms.
Ms. Tai has said she is pressing Chinese leaders on those other commitments, as well as on important trade issues that were not covered in the deal, like China’s use of industrial subsidies to bolster its industries.
But she called the trade deal, which is often referred to as Phase 1, “a living agreement.”
“This is the commitment that we bring as an administration to the agreements that the United States enters into with our trading partners, which is, yes, we are holding them accountable,” Ms. Tai said.
China has come closest to satisfying its target commitments on agriculture, fulfilling 83 percent of the purchases it was expected to have made by the end of October under the deal, according to tracking by Mr. Bown.
Corn and pork sales to China have been particularly strong, after an epidemic of African swine fever decimated China’s pig herds. But exports of American soybeans, lobster and other products appear to have fallen short, according to Mr. Bown’s estimates.
For manufactured goods, including Boeing airplanes, cars, medical instruments, pharmaceuticals and industrial machinery, China had purchased only 60 percent of what it promised to buy by the end of October, Mr. Bown said. In that category, aircraft and automotive sales have disappointed, in part because of the grounding of Boeing’s 737 Max airplane. But China’s purchases of American semiconductors and medical products to fight coronavirus, which are also included in that category, have been stronger.
At the end of October, China had purchased 37 percent of the energy products it should have purchased under the deal, following slow sales of crude oil, coal and refined energy products. But Mr. Bown said the targets in that particular sector were “astronomically large.”
China has also made commitments on services, but Mr. Bown said the United States did not publish clear monthly data on services exports, making Beijing’s progress difficult to evaluate.
“Even from the earliest months of the phase one agreement, China was not on track,” Mr. Bown said. “Obviously the pandemic started early in 2020, but a big chunk of it was just that the targets were unrealistic to begin with.”
The Biden administration has sought to de-emphasize the purchases, saying they are developing other more important trade policies related to China.
Several trade agreements with Europe that were announced in recent months show how the administration plans to pursue its China trade strategy beyond Mr. Trump’s deal. American and European leaders have announced that they plan to strengthen their trade ties in technology, civil aircraft and steel, setting new standards that benefit free-market democracies and welcoming more like-minded countries to join their trading club.
Last week, the Biden administration announced a partnership with several other countries meant to control the export of sensitive technologies to authoritarian countries, and encourage other like-minded countries to adopt sanctions for corruption and human rights offenses.
Daniel H. Rosen, a founding partner at Rhodium Group, a research group that focuses on China, said the U.S.-China trade deal was serving as a foundation for the relationship while the Biden administration works on recruiting allies to press for more important structural changes to China’s economy.
“They’re trying to work with it, this thing that they inherited,” he said.