The new administration must address this China trade deal
China came up a lot during the nomination hearing for Katherine Tai to be the next United States trade representative under the new administration. This should not be a surprise. China is a bipartisan issue in Congress. Tai acknowledged the concern and said her team could look at all options to deal with the illiberal economic practices from China.
She also noted that China made a commitment when it signed phase one of the trade deal last year. However, the lack of purchases made by China and a global pandemic means the trade deal will need to be renegotiated. The trade deal has not been a total failure. Several American officials have touted the achievements. But the trade deal has not been a total success either. Last year, China failed to buy over $200 billion worth of American products and services that are included with the deal.
China was meant to buy more of certain products from the United States, like crude oil, soybeans, and semiconductors, but the deal left out things like airplanes and optical supplies. The deal also laid out a specific value of the products and services to be purchased. China has just managed to import about 60 percent of the products it should have. Moreover, it will likely only manage to import around 50 percent of the services it should. This will be a problem for trade officials on both sides.
It is fair to say the economic disruptions the coronavirus caused for both the United States and China had a lot to do with China failing to buy more products. Even the former trade representative and negotiator in the deal knew this. But there was also skepticism on whether China would buy all the products and services to start with. Even if it had no means to run all these purchases, it can blame things on the pandemic.
This hands both sides the chance to review the terms of the deal, which allows them to consult one another in a natural disaster or crisis. Trade officials must discuss why China failed to make its purchases and find a solution or withdraw from the deal altogether. President Biden wants to consult with allies first in his broader strategy on China.
But there are two items that allies might not solve. First is the legal issue created with the trade war. The abuse of tariffs by the last administration was a violation ignored in Congress. More than 3,000 firms filed a lawsuit against the administration for its abuse of tariffs last year. Now Biden and his team will have to deal with the legal aftermath. Second is the fact that consumers are still paying the tariffs instead of China. Almost $80 billion has been collected from Americans ever since the trade war began. That breaks down to some $600 fronted by each household.
A few billion dollars collected on duties from tariffs a month can add up fast. Meanwhile, many Americans are still unemployed. Hopefully, Biden and his trade officials do not wait long before they figure out it is time to renegotiate this broken deal and hold China to account.
Riley Walters is the Deputy Director of the Japan Chair at Hudson Institute.