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Economic Group Suggests New US Approach for Tackling China’s Trade Policies

While the U.S. has taken a series of aggressive actions against China’s trade practices this year, with  China retaliating against U.S. enforcement actions with reciprocal tariffs, they have not had the desired results, a new report to Congress contends.

The U.S.-China Economic and Security Review Commission’s annual report to Congress recommends more creative, but unified approaches to challenge China’s trade and economic practices.

In all, more than $250 billion worth of U.S. imports from China and $110 billion worth of U.S. exports to China are subject to tariffs initiated in 2018. The commission’s report said the results have been difficult to measure and have not achieved the goal of the call for China to “level the playing field” and to not unfairly support its industry with an attempt to undercut U.S. manufacturers.

On the plus side, the report noted, “The Chinese government continues to focus on sustaining domestic economic growth, a goal made more difficult by rising trade tensions with the United States and efforts to reduce debt levels. These challenges have already begun to weigh on China’s overall economic performance as investment, consumption and business activity growth fell in the second quarter of 2018. Early indicators suggest China’s economy will slow further in the second half of 2018, threatening progress on the Chinese Communist Party policy priorities, such as deleveraging, controlling pollution, and reducing poverty.”

However, the report said the Chinese government continues to exercise direct and indirect control over key sectors of the economy, putting U.S. companies at a disadvantage. Government promises to allow greater market access for foreign firms remain unfulfilled, according to the report, and instead, Beijing has consolidated control over economic policymaking.

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While some methods the U.S. has used have been successful at targeting aspects of China’s industrial policies—such as individual subsidy programs or tariffs—U.S. policy makers generally feel antidumping and countervailing duty actions and import restrictions have “proven limited when set against a vast array of industrial policies viewed as a political and economic imperative by Chinese leadership.”

In a broad sense, the commission said Beijing “has abandoned any inclination for economic and political liberalization.” Instead of promoting fair trade and investment, the report said China engages in “predatory economic practices.” And rather than providing financing for development that’s in line with already established rules, China opts for nontransparent ways to provide loans and investment that aren’t always in line with global governance standards or commercial viability.

“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,” the commission said. “Those hopes have, so far, proven futile. Members of Congress, the administration and the business community have already begun taking bipartisan steps to address China’s subversion of international order. Washington now appears to be calling with a unified voice for a firmer U.S. response to China’s disruptive actions… 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.”

Now the commission wants Congress to take a number of actions, including the U.S. Trade Representative (USTR) bringing a rarely-used “non-violation nullification or impairment” case against China regarding the World Trade Organization’s (WTO) General Agreement on Tariffs and Trade.

This action allows WTO members to dispute measures that are seen nullifying or impairing an expected benefit, since China’s WTO accession called for it to participate in the multilateral trading system on open, market-oriented terms. However, the report said such cases have been rare and narrow in scope, so the outcome is unsure.

The report also suggested Congress take actions such as directing the Government Accountability Office to conduct an assessment of U.S.-China collaborative initiatives in technical cooperation that consider whether the intellectual property rights of U.S. researchers and companies are being adequately protected. It should also investigate whether any U.S. companies, universities or labs participating in U.S. government-led collaboration with China have been subject to cyber penetration originating in China.

According to the commission, Congress should also direct the U.S. Department of Agriculture (USDA) to identify how China’s subsidy approval system for agricultural products adversely effects U.S. industry and work with USTR to seek bilateral or multilateral measures to address these impacts.

Turning to China’s Belt and Road Initiative (BRI)—aimed at expanding Chinese influence through financing and building infrastructure around the world, with a focus on Asia, the Middle East, Africa and Europe—the report said much of what Beijing has invested in remains in the planning phase and will take years to complete.

Countries are, however, starting to compare their experiences with BRI projects to China’s early promises of easy infrastructure financing and have begun to voice concerns about “BRI projects creating unsustainable debt levels, fueling corruption and undermining sovereignty.”

Meanwhile, major powers such as the U.S., Japan, India, European states and Russia “acknowledge BRI as one means for meeting global infrastructure needs.” At the same time, these countries are advancing their own plans for financing connectivity that variously compete and collaborate with BRI, the report said.

To better establish an actual level playing field, the report suggested Congress should create a fund to provide additional bilateral assistance for countries that are a target of or vulnerable to Chinese economic or diplomatic pressure, especially in the Indo-Pacific region. The fund should primarily be used to promote digital connectivity, infrastructure and energy access.