US-China trade dilemma: how to hold Beijing’s feet to the fire
Deal ending trade war could be imminent
Washington — US and Chinese officials say an historic deal ending their trade war could be imminent, but a key question is how can Washington be sure Beijing will live up to its end of the bargain?
With up to 100 Chinese officials reportedly expected next week in Washington, with the possibility of unveiling a grand agreement after months of tension, that question is hanging over the talks.
Beijing may make eye-popping offers to buy American energy and agriculture exports as a means of cutting the soaring US-China trade deficit ($378.7bn in 2018, including services trade), but all eyes will be on whether the agreement has any teeth.
US vice-president Mike Pence said on Friday the enforcement mechanism would be key to the decision on whether to remove the punishing US tariffs which now cover more than $250bn in Chinese imports.
“The reason enforcement has become central to this negotiation is the long history of China not living up to the spirit of the commitments it has made in the WTO and in bilateral negotiations with the US and other countries,” Edward Alden, a trade expert at the Council on Foreign Relations, said.
US President Donald Trump has repeatedly accused China of stealing from the US by buying less from America than it sells.
But Trump also has demanded structural changes to the Chinese economy, including an end to forced transfer of American technology, theft of intellectual property and the massive role the Chinese government plays in markets and industry.
US trade representative Robert Lighthizer, who is leading the US delegation along with treasury secretary Steven Mnuchin, has insisted Washington will not accept empty promises and will demand verification Beijing is keeping its word.
Reaching trade agreements with China can be especially challenging, given that its regulations are not transparent, Alden said. “China can change its laws in ways that please the US, but then use regulatory tools to thwart implementation.”
To ensure strict compliance, US negotiators have proposed monthly, quarterly and semi-annual meetings, with the twice-yearly meetings to involving the most senior officials.
Should American businesses report violations of the agreement, Washington could begin a series of consultations with their Chinese counterparts, and then unilaterally impose new tariffs if no resolution is achieved, according to US media reports. But China also would have recourse to the same tariff tool in case of a US violation.
“The enforcement mechanism is crucial to the agreement,” Doug Barry, spokesman for the US-China Business Council, said.
“Without a credible, time specific, verifiable means to hold parties accountable, we will miss an opportunity to put the trade relationship on a new and better footing.”
Alden says the tool under discussion appears novel because bilateral free trade agreements typically resolve disputes through arbitration panels which oversee retaliatory tariffs, similar to the World Trade Organisation dispute settlement process.
Businesses on both sides of the Pacific want the talks to wrap up as soon as possible to reduce uncertainty in international commerce at a time when the trade war has weighed on manufacturing sectors in both countries.
Among the top 15 US states exporting to China, many have been hit hard by China's retaliatory tariffs on soy, pork or in the aviation sector, including Alabama, Illinois and Washington State, according to the US-China Business Council.
Companies are calling for the tariffs imposed last year — which cover more than $360bn in two-way trade — to be lifted. But Washington hopes to retain the ability to resort to tariffs as a cudgel.
“We have to maintain the right to be able to — whatever happens to the current tariffs — to raise tariffs in situations where there’s violations of the agreement,” Lighthizer said in senate testimony in March. “That's the core. If we don't do that, then none of it makes any difference.”
But, according to Alden, that could create “ongoing uncertainty” for businesses unaware of when either side could seek to impose unilateral tariffs.