5 avenues US must pursue in its trade talks with China
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One of the most important achievements of last week’s summit between President Donald TrumpDonald John TrumpMore than 300 military family members endorse Biden Five takeaways from the final Trump-Biden debate Biden: 'I would transition from the oil industry' MORE and Chinese President Xi Jinping at the Mar-a-Lago resort in Florida was an agreement on how to address contentious issues in the U.S.-China economic relationship.

Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross will co-lead the new Comprehensive Economic Dialogue that will include a “100-day plan on trade.” As someone who has worked on trade issues for both Republican and Democratic administrations, I know that the 100 days will fly by.

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The U.S. team must look beyond concrete deliverables that can be announced as immediate “wins,” and should also address, from day one, crucial issues that will contribute to the success of this new dialogue. 

 

The temptation will be to focus primarily on delivering an agreement to reduce our large bilateral trade deficit with China and to address the most egregious trade and investment barriers detailed in U.S. Trade Representative's "National Trade Estimates Report", issued in March. Indeed, this is a critical part of the dialogue.  

For the dialogue to be credible, it needs to demonstrate success on such issues as steel and aluminum overcapacity; digital trade barriers to data flows and web filtering; and agriculture restrictions.

But there are five other aspects of the dialogue that must not be overlooked if it is to truly reset our bilateral economic engagement with China:

First, the dialogue should address emerging issues, even if doing so may not lead to public outcomes by day 100. With bilateral trade on autos still at modest levels, for example, this is an opportune time to formulate a strategic solution for trade in this sector, particularly with respect to the next generation of vehicles.

Ross and Mnuchin should not just focus on the imbalance in tariff levels between the two countries. One of the most important lessons to be learned from our auto trade wars with Japan was that addressing non-tariff measures, such as unique standards and discriminatory taxes, is at least as important.

Further, China has laid out its strategic industrial vision in its "Made in China 2025" plan, which highlights 10 priority sectors to upgrade its industrial base. U.S. officials should use this as a starting point for work on emerging issues as they prepare for this dialogue. By successfully addressing these issues today, they may not be tomorrow’s issues of contention. The payback in the medium term can be enormous. 

Second, the U.S. team should recognize that China will expect to show gains from the dialogue. Heading off a trade war is not enough. China’s announcement of the dialogue couldn’t have been clearer on this score. According to the Chinese readout of the meeting, the dialogue will be based on the principle of “equality and mutual benefit,” and will “increase market access to each other.”

While this doesn’t necessarily mean there needs to be a one-for-one correlation, particularly given the imbalance in our bilateral trade relationship, the United States nevertheless needs to make offers to China. The U.S. should start this work now, so not to be caught at the end of the 100 days with Chinese demands too difficult to meet, like loosening investment restrictions and relaxing export controls.

Some sort of affiliation with China-founded institutions, such as the Asian Infrastructure Investment Bank or the One Belt One Road initiative, should be considered. Also, the Trump administration can provide a detailed roadmap toward obtaining non-market economy status for U.S. antidumping cases, which has led China to initiate dispute settlement procedures against the U.S. in the World Trade Organization (WTO).

Third, the United States should carefully consider what other trade actions it may take during these 100 days and how these actions could impact progress in the dialogue. China will not be shy about responding with corresponding measures and may even hold the dialogue hostage until the termination of U.S. actions.

Fourth, U.S. officials should update other major trading partners on the deliberations, while learning more about the progress those countries are making in their own economic engagements with China. Most Asian economies, heavily dependent on trade and investment from both China and the U.S., stand to be directly impacted by developments in the bilateral dialogue.

Furthermore, as the U.S. shapes its priorities for the dialogue, knowing more about inroads that our trading partners may be making in their own dialogues, agreements or ongoing negotiations with China — including the ongoing negotiations for the Regional Comprehensive Economic Partnership (RCEP) between China and 15 other Asian countries — is an important reference point.

Fifth, as a complement to the bilateral initiative with China, it may be time to seriously consider pursuing a regional digital trade agreement with economies that are ready and interested, such as the Trans-Pacific Partnership nations and possibly Korea.

This would have the dual purpose of setting the rules in this growing sector, while providing important leverage for bilateral work with China. It could also empower those in China who recognize the potential gains from further opening the digital sector.

The 100 days will go by quickly, with strong pressure to deliver results. If not sufficiently organized from day one, important pieces of the work may be overlooked until the final stages. This could have a major impact on the quality of results. But if shaped strategically, our new economic engagement with China could prove to be even more successful than imagined when agreed to last week in Mar-a-Lago.

 

Former Deputy U.S. Trade Representative Wendy Cutler is the vice president of the Asia Society Policy Institute, which tackles major policy challenges confronting the Asia-Pacific in security, prosperity and sustainability.


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