Tag: U.S.-China Trade

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U.S.-China Economic and Trade Relations

The U.S.-China Economic and Security Review Commission  has issued its annual report to Congress. The New York Analysis of Policy and Government will periodically present summaries of their work.

The CCP’s [Chineses Communist Party] mismanagement and concealment of the COVID-19  outbreak fueled a global pandemic and contributed to a massive shock  to the global economy in 2020. China’s own economy appears to be in an early recovery, yet it is concluding 2020 in a more precarious  economic position than it began the year. Both the immediate economic shock and uneven recovery have deepened inequality and perpetuated inefficient allocation of resources and credit. To revive growth, the government rehashed a familiar strategy of state-led investment in the  industrial sector but did little to shore up the social safety net, leading  to a rebound in industrial output but not consumption. Continued increases in supply without revival of demand risk exacerbating Chinese  overproduction and could drive down global prices, hurting workers and  businesses beyond China’s borders.  

Prior to the outbreak, in January 2020 the U.S. and Chinese governments signed a Phase One agreement, which secured commitments across a range of U.S. interests. Although the deal was welcomed by many stakeholders, it left unaddressed longstanding structural distortions introduced by China’s economic policies. China’s commitments to provide greater market access for some foreign financial services  may present commercial opportunities for U.S. firms but could also  expose U.S. financial institutions and investors to substantial risks. The commitments are by no means synonymous with liberalizing the sector,  and U.S. entrants will likely compete with local rivals on unfair terms.  A fresh infusion of foreign capital may also allow Chinese banks to roll  over delinquent loans and keep perennially loss-making enterprises  afloat, rather than pushing through much-needed reforms to address  systemic financial risks.  

U.S.-China bilateral tensions continued to escalate in 2020. In a series of unilateral measures, U.S. policymakers moved to halt the  flow of U.S. advanced technology to Chinese companies that pose a  national security threat. Chinese policymakers are considering a range  of retaliatory measures, including introducing export regulations and  an unreliable entity list—a blacklist—aimed at punitive reciprocal  restrictions. As U.S. imports from China declined, U.S. multinationals  began to reconsider how best to structure their supply chains in the  face of uncertainty and political risk.

Key Findings 

▶ China’s GDP contracted 6.8 percent the first quarter of 2020, marking the worst quarterly performance since 1992 and the first contraction since the Mao era. Responding to the economic shock, China’s government reverted to past practices, exacerbating  enduring structural problems within China’s economy. Massive state-led investment and other policy choices have benefitted state 

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owned enterprises at the expense of households and small business  and risk increasing global overcapacity, inequality, and debt buildup. 

▶ U.S.-China tensions continued to escalate over trade and national security concerns. The U.S. Department of Commerce tightened restrictions on Huawei and added over 100 China-based entries to  the Entity List for a range of activities, including illicitly providing U.S.  technology to China’s military, aiding in the repression of China’s ethnic Uyghur minority, and constructing artificial islands in the  South China Sea. The U.S. Department of Homeland Security also blocked Chinese imports from factories and companies suspected of  using forced labor, primarily in China’s Xinjiang Uyghur Autonomous  Region. Chinese leaders have threatened retaliatory treatment and  redoubled efforts to secure technological self-sufficiency. 

▶ Continuing trade tensions and shortages related to the spread of the COVID-19 pandemic revealed key supply chain vulnerabilities,  prompting the United States and its allies to accelerate their  reassessment of dependence on China for critical inputs and  finished goods. As 2020 comes to a close, U.S. companies continue  to weigh their sourcing options and consider what degree of reliance  on concentrated production in China is acceptable. 

▶ Despite mounting tensions between the United States and China, the two countries reached a Phase One trade agreement in January. In the agreement, China once again committed to ensuring  technology transfer occurred on a voluntary basis, providing stronger  intellectual property protection, allowing greater market access for  U.S. financial services, reducing nontariff barriers to trade for U.S.  agricultural products, and reaching specific purchase targets of U.S.  exports, though by August 2020 China was on track to import only  one third of the aggregate target for the year. Remaining long-term challenges, including Chinese government subsidies,local content requirements, and continuing market access restrictions in other  sectors were deferred to future rounds of negotiation. 

▶ The Chinese government’s decision to allow greater foreign investment in its financial sector coincides with an urgent domestic  demand for capital, as China’s banking sector faces an unsustainable  debt burden. Favoritism for local corporations, lack oftransparency,  and weak regulatory and accounting practices place U.S. assets and  investors, including pension funds, at substantial risk. 

Illustration: Pixabay

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China’s Trade Practices Harm U.S. But Support for Trump’s Response Remains Limited, Part 2

China has engaged in trade and intellectual property theft practices that substantially harm the U.S. economy. However, President Trump’s attempts to address the problem have met with limited support. We conclude our report on the problem.

Pew Research reports that “Since the turn of the 21st century, U.S. average tariff rates have consistently been at or near their lowest levels in the nation’s history; today, they’re also among the lowest in the world. In 2016, according to the World Bank, the average applied U.S. tariff across all products was 1.61%…China’s was 3.54%…Though the general trend globally has been toward lower tariffs, some nations still impose relatively high import taxes – particularly countries in Africa, South Asia and the Caribbean. The nation with the highest weighted-average applied tariff in 2016, according to the World Bank, is the Bahamas, at 18.6% (which was still 10 percentage points lower than the average rate in 1999). Gabon’s average applied rate was 16.9%, just above Chad’s average tariff of 16.4%.

“Today’s low U.S. tariff levels are the product of a (mostly) bipartisan consensus in favor of progressively freer trade that dates back to the post-World War II era.”

There has been a climate of unreality about this problem. The U.S.-China Economic and Security Review Commission   notes that “For several decades, U.S. policy toward China was rooted in hopes that economic, diplomatic, and security engagement would lay the foundation for a more open, liberal, and responsible China. Those hopes have, so far, proven futile… As a new approach takes shape, U.S. policy makers have difficult decisions to make, but one choice is easy: reality, not hope, should drive U.S. policy toward China.”

It is erroneous to consider competition between American and Chinese companies as battles between private entities. The U.S.-China Economic and Security Review Commission describes why: “China’s state-led, market-distorting economic model presents a challenge to U.S. economic and national security interests. The Chinese government, directed by the Chinese Communist Party (CCP) leadership, continues to exercise direct and indirect control over key sectors of the economy and allocate resources based on the perceived strategic value of a given firm or industry. This puts U.S. and other foreign firms at a disadvantage—both in China and globally—when competing against Chinese companies with the financial and political backing of the state… The Chinese government continues to resist—and in some cases reverse progress on—many promised reforms of China’s stateled economic model. Repeated pledges to permit greater market access for private domestic and foreign firms remain unfulfilled, while the CCP instead enhances state control over the economy and utilizes mercantilist policies to strategically develop domestic industries. Chinese policymakers have stated their intent to, but been largely unsuccessful in, fighting three “battles” to achieve high-quality development in the next three years: cutting corporate and local government debt, controlling pollution, and reducing poverty. Chinese President and General Secretary of the CCP Xi Jinping has prioritized efforts to consolidate control over economic policymaking. However, this strategy may have unintended consequences for China’s economic growth. Increased state control over both public and private Do you have the resources to blog? Blogging is a order levitra canada significant time commitment. The physicians suggest ED patients some safety guidelines to avoid suffering from the associated side effects. cialis uk However, individuals who have heart problems or take drugs containing nitrates should consult a qualified doctor is necessary in such a situation to purchase cialis online http://raindogscine.com/nuevo-premio-para-anina/ avoid experiencing undesired effects when taking the medication. Never sex for physical gratification, you will be ashamed and guilty at one point of your life. buy viagra in bulk Chinese companies may ultimately reduce productivity and profits across a range of industries, with firms pursuing CCP— rather than commercial—objectives.”

Much of the damage came during the Bill Clinton Administration.  His sale of Cray supercomputers to China, and his subsequent signing of legislation bringing that nation into the World Trade Organization were dramatic leaps forward for Beijing. There are deep suspicions that China’s moves to financially support his presidential campaign were motivations for those actions.

But Clinton isn’t alone.  In an exclusive interview, former top Clinton advisor and current Republican-oriented commentator Dick Morris stated to us his belief that a number of key leaders in both parties have ties to private interests that profit from dealings with China, making them reluctant to support necessary corrections.

While opposition from Democrats, particularly those with ties to the Clintons, would not have been unexpected, opposition from Republicans surprised some. Some GOP opposition comes from those who purport to oppose tariffs based on free trade principles. But the concept of free trade depends on both trading partners playing fair.  When one side places extraordinary restrictions while the other refrains from such actions, that could hardly be called free trade.

Some elected officials, particularly Republicans, are concerned that a trade war will cause some temporary economic dislocation. Aware of the general media bias, they correctly assume that the press will criticize them for any pain, however brief, caused by it. Ignored, of course, is the extraordinary long-term gains American workers would make if China’s ongoing unfair practices were stopped.

Photo: Shanghai skyline (Pixabay)

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China’s Trade Practices Harm U.S. But Support for Trump’s Response Remains Limited

The latest trade statistics indicate that the United States is suffering more than ever from China’s unfair practices. Some are beginning to question the motives behind some elected officials’ lackluster support for the Trump Administration’s move to address the problem. 

Using the latest reported statistics from October, Trading Economics found that The goods deficit with China jumped to a record high of USD 43.1 billion from USD 40.2 billion.

Beijing’s corporations, which are heavily connected to government, undercut American businesses using financial tactics such as selling items below market value, then taking over complete control of specific markets when American counterparts go out of business. They also steal (using sophisticated cyber practices, reverse engineering, and old-fashioned espionage) technology developed at significant expense by U.S. enterprises.

More than merely inhibiting the sale of U.S. products in China, Beijing’s practices amount to forced transfer of intellectual property rights. According to the Office of the United States Trade Representative, “On August 18, 2017, the Office of the U.S. Trade Representative (USTR) initiated an investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. On the date of initiation, USTR requested consultations with the Government of China concerning the issues under investigation. Instead of accepting the request, China’s Ministry of Commerce expressed “strong dissatisfaction” with the United States and decried the investigation as “irresponsible” and “not objective. On March 22, 2018, USTR issued the Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974.

“Based on this report, USTR determined the following Chinese actions are unreasonable or discriminatory and burden or restrict U.S. commerce:

1. China uses foreign ownership restrictions, such as joint venture (JV) requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies.

 2. China’s regime of technology regulations forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market based terms that favor Chinese recipients

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3. China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate the transfer of technology to Chinese companies.

 4. China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies to access their sensitive commercial information and trade secrets.”

The USTR concluded that “China fundamentally has not altered its acts, policies, and practices related to technology transfer, intellectual property, and innovation, and indeed appears to have taken further unreasonable actions …”

President Trump has made correcting China’s unfair trading practices a major focus of his administration. Despite the clear challenge to the U.S. economy, his Administration has not received the level of support expected from both Republican and Democrat leaders, as well as major media outlets.

Pew Research found that “Overall, nearly half (49%) of U.S. adults say increased tariffs between the U.S. and its trading partners will be bad for the country. A smaller share (40%) say the tariffs will be good for the U.S., while 11% say they don’t know how the tariffs will affect the country…The survey, conducted July 11-15 among 1,007 adults, finds that attitudes toward the tariffs are deeply polarized. About seven-in-ten (73%) Republicans and Republican-leaning independents say increased tariffs between the U.S. and its trading partners will be a good thing for the country. Roughly the same share of Democrats and Democratic leaners (77%) say the increased tariffs will be a bad thing for the U.S.

The Report Concludes Tomorrow

Chart: U.S. tariffs compared to global norms (Pew Research)