The US has a new trade chief. What supply chains can expect on tariffs and China.

Date: Friday, March 19th, 2021
Source: Supply Chain Dive

 

Trade didn't make it into the Biden administration's seven immediate priorities. It's not a subject where analysts and former trade representatives expect to see big moves or a flurry of activity.

But that hasn't deterred newly-confirmed U.S. Trade Representative Katherine Tai.

"I don't expect, if confirmed, to be put on the back burner at all," Tai said at her confirmation hearing Feb. 25.

The Senate confirmed Tai to the cabinet position Wednesday on a vote of 98-0, after the Senate Finance Committee backed her unanimously.

Addressing China — from unfair trade practices to human rights abuses against Uyghurs — is a priority for the Biden administration, according to the president's 2021 trade agenda. Tai is well-suited to lead that strategy, given her experience in the Office of the U.S. Trade Representative as Chief Counsel for China Trade Enforcement and litigating disputes on China export controls. Plus, she speaks fluent Mandarin.

"She'd be in a very good position to set priorities on what should be the changes to seek with China," said Peter Allgeier, former deputy U.S. Trade Representative, prior to Tai's confirmation.

Tai will play a large role in shaping the Biden administration's trade strategy — with an approach that recognizes China as "simultaneously a rival, a trade partner and an outsized player," in the global trade landscape, Tai said. "I know firsthand how critically important it is that we have a strategic and coherent plan for holding China accountable to its promises," she said during her confirmation hearing.

Accountability won't take the unilateral form of tariffs as it did during the Trump administration, but that doesn't mean Biden and Tai will take a soft stance on China. In fact, Allgeier said he expects Biden to be "rather aggressive with China."

Business leaders can expect and plan for a trade policy marked by multilateralism, predictability and an eye toward resilience — but not necessarily one that reduces or eradicates the Section 301 China tariffs in the near term.

Holding China accountable
Trade experts said it would be difficult for the U.S. to roll back tariffs without something in return from China, as the administration could be perceived as soft on China.

"There are promises that China made that China needs to deliver on," Tai said.

Those promises include progress on issues such as intellectual property theft and technology transfer. They also include meeting the purchase requirements specified in the phase 1 trade deal. But China's imports of U.S. products in 2020 reached less than 60% of the commitment, according to the Peterson Institute for International Economics.

The Biden administration could use existing tariffs as a bargaining chip or leverage against China to ensure it delivers on its promises.

If China doesn't fulfill its commitments, the administration "will get tough pretty quickly and demand that [China] do so, or find methods to retaliate," said Gail Strickler, president of global trade for Brookfield Associates and former assistant U.S. Trade Representative. Strickler said any form of U.S. retaliation would be through planned and deliberate policy.

Tai is known as a skilled negotiator. Trade groups, former colleagues and lawmakers on both sides of the political aisle praise Tai as credible, tough, tenacious and a trailblazer.

"The best negotiator is always someone who can understand where the other is coming from, to understand the nuance, the perception," Strickler said. "We don't have anybody who would be better at that than Katherine."

Short- and long-term changes to China tariffs
Biden said in December he would not make any immediate moves on China tariffs, and trade analysts unanimously agreed that they didn't expect a reversal of the import duties in the near term.

What may change short term is the process for tariff exclusions. Tai said revising the Section 301 exclusion process is "very high on my radar," including the process by which businesses file for exclusions and the decision-making involved in which items are granted exclusions. Americans for Free Trade called on Tai to "immediately conduct a full review of and reinstate the Section 301 product exclusions upon being confirmed."

Exclusions granted on certain categories or products during the Trump administration will likely continue under Biden and Tai, Strickler said. USTR said in early March it would extend through September the product exclusions announced in December, many of which were related to COVID-19 response.

In fact, the administration will likely give exclusions from tariffs to more products than were granted exclusions during Trump's time, said Clete Willems, partner at Akin Gump and former deputy director of the National Economic Council, speaking before Tai's hearing. That's especially true for products related to fighting the COVID-19 pandemic.

Longer term, the tariffs will be an issue to tackle.

Damon Pike, leader of BDO's Customs & International Trade practice, called the 301 tariffs "the big kahuna."

From lists 1 through 4, the tariffs cover nearly the entire value of goods that the U.S. imports from China. Importers and trade groups largely disagreed with the Trump administration tariffs on China, in terms of the duties as well as the process of announcing and implementing them. The tariffs increased costs on imports from China on short notice and left procurement leaders with few alternatives due to established product supply chains rooted in China.

"I know that the 301 tariffs have touched directly a lot of people and have disrupted a lot of people's livelihoods," Tai said at her hearing.

Tariffs Hurt the Heartland estimated consumers have paid $68 billion since the start of the trade war, according to a Feb. 18 release. The American Action Forum said the China tariffs increased consumer costs by about $53 billion annually. And the U.S.-China Business Council said the trade war resulted in the loss of 245,000 jobs.

"There's going to be a concerted effort to come up with a policy that eliminates the China tariffs eventually," Pike said.

 

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