US to restart trade talks with China soon and ‘explore all options’

China has fallen short of its commitments under the 2020 phase one trade agreement, said senior US administration officials.
China has fallen short of its commitments under the 2020 phase one trade agreement, said senior US administration officials.PHOTO: AFP

WASHINGTON - The United States will restart trade negotiations with China soon, US Trade Representative (USTR) Katherine Tai said on Monday (Oct 4) in Washington.

While she declined to give a timeline, China’s purchase commitments under an existing agreement are set to expire at the end of this year.

She said the US would discuss with China its performance under the phase one agreement, in which China agreed to expand its purchases of US goods. The US would also start a “targeted tariff exclusion process” to optimally benefit American industries and workers.

In recent years, Beijing has “doubled down” on its state-sponsored economic system, which shields large enterprises from market forces, Ms Tai noted in her address at the Centre for Strategic and International Studies (CSIS).

“We continue to have serious concerns with China’s state-centred and non-market trade practices,” she said. “We will use the full range of tools we have and develop new tools as needed to defend American interests.”

Critically, the US will continue to work with its allies to facilitate fair, rules based trade, she added, insisting that the US’s objective is not to inflame relations with China.

Asked, however, if the US would apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – the successor to the Trans Pacific Partnership (TPP) it helped negotiate but pulled out of in 2017 - she sidestepped the question, saying only that realities had since changed.

Ms Tai said President Joe Biden “welcomed” competition with China, but that it had to be managed responsibly and be fair.

“To be successful we must be direct and honest” she said. “We must explore all options.”

The 2020 phase one trade agreement emerged on the heels of a tariff war started in 2017 by the Trump administration. It went into effect in February last year. Under the agreement, China agreed to expand purchases of certain US goods and services for a two-year period ending Dec 31 above the 2017 baseline levels.

Senior US officials maintain that China has fallen short of its commitments. According to an analysis by the Peterson Institute of International Economics (PIIE), China’s total imports of covered products from the US through August 2021 amounted to US$89.4 billion (S$121.3 billion), short of the agreed target of US$129.9 billion.

While the phase one agreement had stabilised the market especially for American agricultural exports, “commitments in certain areas have been met (but) there have also been shortfalls in others”, Ms Tai said. “The reality is the agreement did not address fundamental concerns we have. China continues to pour billions of dollars into targeted industries.”

A senior official had told journalists on Sunday ahead of Ms Tai’s speech that the US would revisit the phase one agreement and emphasise that China must follow through on its commitment.

“In the coming days, Ambassador Tai will resume direct engagement with her counterpart in China” the official said. 

Officials noted it would be a chance for the US to reiterate it will defend US workers and economic interests against harmful state-directed industrial policies.

They also said the US needed a new strategy that aligned with its trade priorities.

Said an official: “We recognise that China simply may not change and that we have to have a strategy that deals with China as it is rather than as we might wish it to be.”