In One Sentence

• U.S. Trade Representative Katherine Tai argued in an op-ed that trade policy must be transformed in order to counter the partnership between “short-term profit-driven businesses” and “non-market autocracy,” and thereby “democratize economic opportunity” for workers.
• Ambassador Tai later said that she shared with her predecessor, Robert Lighthizer, “a lot of the same diagnoses” on China as well as a “commitment” to changing the United States’ approach to trade amidst “significantly different” global economic dynamics.
• U.S. Secretary of Commerce Gina Raimondo reiterated that U.S. economic engagement in the Indo-Pacific “isn’t about China” and does not seek to stop regional countries from trading with China, but added that if U.S. and partner countries “act together,” it will “send a message to China.”
• Arguing that unilateral tariffs only lead to superficial outcomes, a senior trade analyst has contended that Washington could get “tougher and more effective” on China by challenging “core Chinese policies that distort international trade” at the World Trade Organization.

Mark the Essentials

• At an event hosted by the Atlantic Council on the future of U.S.-EU trade, USTR Tai argued that China should no longer be considered “a cooperative partner” and is instead neither a democracy nor a “capitalist, market-based economy.” Accordingly, the U.S. and the EU should “work together” to rethink traditional approaches to trade and bring about “another new world order” which incorporates both economic and security needs.
• Referring to the extension of the Section 301 tariffs on China, Ambassador Tai noted that the Biden administration does not seek to “constrain China’s economic development” and that the recent expansion of U.S. tariffs on Chinese goods is “not about escalation.” Instead, according to Ambassador Tai, the tariffs are “defensive in nature” and seek to “create the space” for U.S. firms to “survive,” to “compete,” and to “thrive.” 
• As one among the Biden administration’s various trade enforcement actions to “protect American workers and businesses from China,” the Department of Commerce made a preliminary finding that China is unfairly subsidizing its glass wine bottle industry, and is currently contemplating additional tariffs for all Chinese producers at a rate from 21.14% to 202.70%.
• The World Shipping Council—a trade association representing major international liner shipping companies—has told the Office of the U.S. Trade Representative (USTR) that imposing a port fee on Chinese-built ships that dock at U.S. ports would not “meaningfully” alter China’s practices or market dynamics for shipbuilding. The port fee instead “appears designed to raise funds” to finance domestic shipbuilding in the United States. A group of major U.S. unions had earlier petitioned USTR to address China’s “unfair trade practices” in shipbuilding, proposing as “remedies” the port fee as well as other measures such as the creation of a shipbuilding fund for U.S. shipbuilders.

Keeping an Eye On…

• With much of her trade agenda in the works (trade liberalization never got off the ground; trade enforcement is preoccupied with labor cases against Mexico and tariffs against China), U.S. Trade Representative Katherine Tai has been holding forth of late on all matters trade related. Two themes have stood out in her musings—both of which put into perspective the gap between the politics of trade in America and that in other advanced economies. First, for USTR Tai, trade is part of the social contract, and its role needs to be reworked so that economic opportunity can be “democratized” in favor of workers. For too long, trade resembled a form of “trickle down economic policy” that enriched the few (i.e., businesses) and kicked the many (i.e., the working classes) to the curb. Tai has it exactly backwards. Trade benefited the many (consumers who enjoyed lower prices) and hurt a few (job losses in concentrated industries or regions). Which is also the reason why almost every major economic area—be it the European Union, Japan or China (amounting to almost $40 trillion in GDP between the three) is still reducing or eliminating their tariff and non-tariff barriers. Perhaps, if U.S. administrations starting with the Clinton administration had expended greater political capital to champion the virtues of trade (and not just exports), and perhaps if the U.S. state had a more generous welfare system—as per the OECD’s ‘social spending’ tracker the U.S. is a relative laggard—the populist predicament facing the political system might not have been as stark today. The second theme is just as damning. In her musings, USTR Tai noted that the U.S. and the EU should work together to rethink approaches to trade in the face of China’s “incredibly large footprint.” Harking back to the 1930s, she noted that the failure of democracies to find common ground on international economic issues had led to devastating consequences. To avoid a repetition of the past, the community of advanced democracies should start a rules-setting initiative that is essentially layered over the WTO system in order to rein in China’s excesses (an exercise on these lines on industrial subsidies during the Trump administration came up short). It is nobody’s case that China is an easy trade partner to manage. There is genuine anxiety about its competitive prowess and disgust regarding some of its underhand practices that President Xi Jinping vows to eradicate but somehow never comes around to eliminating. That said, every major advanced economy other than the U.S. would prefer to manage and resolve its differences with China within the framework of trade multilateralism and the four corners of treaty law—and, if need be, consensually build out that framework of treaty law. It is not surprising that the U.S. is the only major advanced economy that remains outside the Multi-Party Interim Appeal Arbitration Arrangement that countries have set up to resolve their trade disputes on the basis of WTO principles and law in the absence of a functioning WTO Appellate Body. An attempt to layer a rule-setting initiative over-and-above the WTO system and, in effect, treat China as a ‘foreign entity of concern’ may work in the technology arena but will find no purchase in the trade policy arena—including within the club of advanced democracies. The MFN principle and the ‘national treatment’ principle are too deeply baked into the system for them to be jettisoned on a whim. That the U.S. would even consider surrendering its intellectual patent so casually on the multilateral trade system that it so assiduously conceived and constructed is itself depressing. Be that as it may, the race to the top that USTR Robert Zoellick had challenged his advanced economy peers to, by way of his strategy of ‘competitive liberalization’ two decades ago, has long since passed. Under USTR’s Tai and Lighthizer, a new race to the bottom has been inaugurated with the two parties vying to outdo each other in terms of ‘competitive populism.’

Expanded Reading

• U.S. economic engagement in Indo-Pacific ‘isn’t about China,’ Commerce Secretary Raimondo says, CNBC, June 7, 2024
• Katherine Tai on how US and EU trade approaches must ‘evolve’ to deal with China and other global challenges, Atlantic Council, June 4, 2024
• U.S. Department of Commerce Makes Affirmative Subsidy Determination in Trade Case on Glass Wine Bottles from China, Buchanan Ingersoll & Rooney PC, May 30, 2024
• Beyond US Unilateralism: Rethinking the Response to China’s Trade Practices, Baker Institute for Public Policy, May 29, 2024
• Op-Ed by Ambassador Katherine Tai: Trade must transform its role in the social contract, Office of the United States Trade Representative, May 28, 2024
• PRC Must Not Be Allowed to Wipe Out Competition, Voice of America, May 28, 2024
• Press Briefing by Press Secretary Karine Jean-Pierre and United States Trade Representative Katherine Tai, The White House, May 14, 2024