Year in Trade: Slow Road to China Reform Leaves Biden Policies in Flux

Date: Wednesday, December 29, 2021
Source: Sourcing Journal

All roads led to U.S.-China relations and its domestic and global impact in 2021.

U.S-China relations

The year started out with the inauguration of Joe Biden as President of the United States, inheriting a contentious U.S.-China trade war initiated by his predecessor. Biden immediately said he would keep controversial tariffs in place on a wide range of goods, including apparel and footwear, from China, as “leverage” in trade negotiations with Beijing.

Biden also said his Build Back Better agenda would look to protect American workers and industry, while pledging to become more active in rebuilding international alliances.

In March, the Senate unanimously confirmed Katherine Tai, who received the backing of the domestic textile and apparel industry and import groups, as the new United States Trade Representative (USTR). Testifying before the Senate Finance Committee in February, Tai cited Biden’s pledge to rebuild international alliances and partnerships and re-engage with international institutions. Tai said this extends to “addressing the challenges posed by China.”

Tai told the committee that “China is simultaneously a rival, a trade partner and an outsized player whose cooperation we’ll also need to address certain global challenges.”

“That means here at home, we must prioritize resilience and make the investments in our people and our infrastructure to harness our potential, boost our competitiveness and build a more inclusive prosperity,” she said. “We must also impart the values and rules that guide global commerce, and we must enforce those terms vigorously.”

That same month, the U.S., Canada, European Union (EU) and U.K. announced sanctions on several Chinese officials in retaliation for what they described as human-rights abuses against Uyghurs, Kazakhs and other Turkic Muslim minorities in the Xinjiang Uyghur Autonomous Region in northwestern China.

The U.S. sanctions came days after the Biden administration traded barbs with Chinese diplomats during an Alaska meeting. Secretary of State Antony Blinken said the sanctions were part of the United States’ desire to fulfill a “strong leadership role in global efforts to combat serious human-rights abuse,“ such as those occurring in Xinjiang.

“Amid growing international condemnation, the [People’s Republic of China] continues to commit genocide and crimes against humanity in Xinjiang,” Blinken said. “The United States reiterates its calls on the PRC to bring an end to the repression of Uyghurs, who are predominantly Muslim, and members of other ethnic and religious minority groups in Xinjiang, including by releasing all those arbitrarily held in internment camps and detention facilities.”

In May, USTR took China to task in its annual Special 301 Report on the adequacy and effectiveness of U.S. trading partners’ protection and enforcement of intellectual property (IP) rights. USTR said it has been closely monitoring China’s progress in implementing its commitments under the United States-China Economic and Trade Agreement, also known as the Phase One Agreement. In 2020, China published several draft IP-related legal and regulatory measures and finalized over a dozen, the agency said.

“Notably, China amended the Patent Law, Copyright Law and Criminal Law in the past year,” USTR said. “However, these steps toward reform require effective implementation and fall short of the full range of fundamental changes needed to improve the IP landscape in China.”

In July, the U.S. Senate unanimously approved legislation to ban the import of all goods from China’s northwestern Xinjiang Uyghur Autonomous Region following growing reports about forced labor and other human-rights abuses against Uyghurs and other Turkic Muslim minorities. The Uyghur Forced Labor Prevention Act creates a “rebuttable presumption” that assumes all products from Xinjiang are made with forced labor–and therefore banned from entering the United States under the 1930 Tariff Act–unless “clear and convincing” evidence demonstrates otherwise.

Biden signed the bill into law last week.

In August, Tai met virtually with the U.S. Chamber China Center Advisory Board and the leadership of the U.S.-China Business Council to discuss U.S.-China trade challenges and the Biden-Harris administration’s stance on these issues. Tai reiterated USTR’s commitment to addressing China’s unfair trade policies and non-market practices that undermine American businesses and workers. During these meetings, Tai noted that the administration and USTR are conducting a comprehensive review of U.S.-China trade policy, according to a readout from the USTR office.

Two months later, during a “Trade Regime Review” of China at the World Trade Organization (WTO), U.S. officials were highly critical of the country’s polices and actions.

“China’s industrial policies skew the playing field against imported goods and services and foreign manufacturers and services suppliers through an array of supporting measures,” U.S. Chargé d’Affaires to the WTO David F. Bisbee said.

Bisbee said when China joined the WTO 20 years ago, WTO members expected that the terms set in “China’s Protocol of Accession” would permanently dismantle existing Chinese policies and practices that were “incompatible with an international trading system expressly based on open, market-oriented policies.”

“But those expectations have not been realized, and it appears that China has no inclination to change,” he said. “Instead, China has used the imprimatur of WTO membership to become the WTO’s largest trader, while doubling down on its state-led, non-market approach to trade, to the detriment of workers and businesses in the United States and other countries.”

The United States’ most fundamental concerns with China’s trade regime involve China’s industrial policies, Bisbee told the WTO. While other WTO members also seek to help their industries develop, China’s approach is materially different.

Beth Hughes, vice president of trade and customs policy for American Apparel & Footwear Association (AAFA), said the organization is “always supportive of administration efforts to correct bad behavior by bad actors.”

“We just feel that what’s happening with the trade war with China, these tariffs, we just don’t think they’re effective in the way that maybe the previous administration was hoping,” Hughes said. “We know that our companies are the ones being taxed heavily–we already have really high tariffs on apparel and footwear imports, and then now we have this really, even more.”

Hughes said the shipping crisis is “just as big of a deal as when we started the pandemic, and stores and factories were shut down all around the world,” adding that providing “some tariff relief” will alleviate pressure in the industry.

“Ways you can do that is eliminate the Section 301 tariffs on Chinese imports, at least by a minimum, start that exclusion process again,” she said. “That just didn’t…cover what we needed it to cover and really started a real exclusion process.”

Phil Levy, chief economist at Flexport, said the U.S. demand for goods is causing much of these pressures and problems.

“We have seen this very unusually prolonged tilt toward goods over services,” Levy said. “I think that’s what’s been at the heart of this whole supply chain crisis and to see that clear in 2022, we need to see that demand back off. I don’t think this is fundamentally a ‘somebody forgot to flip a switch and make supply chains work better.’ I think that the system has a finite capacity, and that capacity is badly strained.”

He believes the Biden administration will face “increasing pressure” to take action on tariffs.

“There was [an] explicit promise that this was going to be a fairly short-term measure, that might be painful, but it would pay off,” he said. “I don’t think we’ve seen any payoff, and it’s looking less and less like a short-term measure…I think there’s going to be increasing pressure to recognize it and push toward some sort of conclusion for the tariffs or to show some results.”

The rest of the world

In other key trade areas, in June the U.S. and EU closed the door on their 17-year dispute over subsidies for aircraft giants Boeing and Airbus, putting an end to $11.5 billion in tit-for-tat tariffs imposed by the former Trump administration. The U.S. and EU in March agreed to suspend all tariffs for four months as they focused on resolving their long-running dispute.

The U.S. and EU reached an agreement suspending tariffs for five years, provided they uphold the terms of the deal. The tariffs impacted a wide range of goods, including fashion items like luxury handbags, wool sweaters and vests, cashmere, and cotton, as well as the luxury tailors of Savile Row.

In October, the AAFA hailed an agreement with Vietnam that addressed U.S. concerns in the Vietnam Timber Section 301 investigation and USTR’s threat of tariffs on products such as apparel and footwear.

In November, USTR and Japan’s Ministries of Foreign Affairs and Economy, Trade and Industry announced the launch of the U.S.-Japan Partnership on Trade. The initiative reaffirms the shared commitment to strengthen the link between the two countries through regular engagement on trade-related matters of importance to both nations.

“This partnership will deepen the cooperation between the United States and Japan that has defined our strong bilateral trade relationship,” USTR Tai said. “Our close collaboration will support the Biden-Harris administration’s development of an economic framework for the Indo-Pacific and help create sustainable, resilient, inclusive and competitive trade policies that lift up our people and economies.”

The initial areas of focus for cooperation will include issues such as third-country concerns, cooperation in regional and multilateral trade-related forums, addressing labor and environment-related priorities, a supportive digital ecosystem for all and trade facilitation.

That same month, Biden announced that three countries will be terminated from the African Growth and Opportunity Act (AGOA) trade preference program as of Jan. 1, absent urgent action to meet statutory eligibility criteria.

“Our administration is deeply concerned by the unconstitutional change in governments in both Guinea and Mali, and by the gross violations of internationally recognized human rights being perpetrated by the government of Ethiopia and other parties amid the widening conflict in northern Ethiopia,” Tai said. “These countries are set to be removed from this program due to actions taken by their governments in violation of the AGOA statute. The United States urges these governments to take necessary actions to meet the statutory criteria so we can resume our valued trading partnerships.”

AAFA’s Hughes said Congress needs to pass General System of Preferences (GSP), the Miscellaneous Tariff Bill and African Growth & Opportunity Act (AGOA) renewals that have long afforded duty savings on a wide range of imports generally not produced in the U.S.

“We’re really hoping that now that the administration has had a year under its belt, that U.S, Trade Representative Tie start to move forward on trade policy,” Hughes added. “We’re hoping that the U.K. and Kenyan [free trade agreement] negotiations actually start again, and we also think strategically. I know we and a lot of others in the business community and Congress are still calling for us to join the [Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),” noting that there’s significant tariff elimination for apparel in CPTPP.

There was also a push to onshore more apparel production to the Western Hemisphere, particularly toward Central America, to expand production under in the region as a commercial and political priority. The efforts and meant to strengthen the region itself and boost sourcing from its main source of raw materials–U.S. textile mills–as well as move manufacturing out of Asia, particularly China.

Vice President Kamala Harris announced significant multimillion-dollar investments by Parkdale Mills and six other companies, as part of the administration’s “Call to Action” to the private sector to promote economic opportunity in the region, as her office works to address the root causes of migration.

Harris, who is overseeing diplomatic efforts with El Salvador, Guatemala, Honduras and Mexico, unveiled several private-sector commitments in December to strengthen economic opportunities in the Northern Triangle. North Carolina-headquartered Parkdale Mills, one of the world’s largest manufacturers of spun yarn and cotton consumer products, will make a multimillion-dollar investment in a new yarn spinning facility in Honduras and make an additional substantial investment to support existing operations in Hillsville, Va.

Meanwhile, a new Asia-Pacific free trade agreement set to enter into force on Jan. 1 will create the world’s largest trading bloc by economic size, according to a new United Nation Conference on Trade & Development (UNCTAD) study.

The Regional Comprehensive Economic Partnership (RCEP) includes Australia, Brunei Darussalam, Cambodia, China, Indonesia, Japan, the Republic of Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam, 15 East Asian and Pacific nations of different economic sizes and stages of development.

UNCTAD’s analysis shows that the RCEP’s impact on international trade will be significant. “The economic size of the emerging bloc and its trade dynamism will make it a center of gravity for global trade,” the report said.


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