In the two years since the signing of the so-called phase-one trade agreement, China's purchases of American ag products soared. The increase drove ag-commodity prices higher and swelled American farmers' profits.
But while large and growing, China's ag purchases fell short of the level set in the phase-one pact. Testifying before the House Agriculture Committee, Agriculture Secretary Tom Vilsack indicated the two years totaled $64 billion, just 80% of the $80 billion China agreed to. (https://www.dtnpf.com/…)
And ag was the bright spot in phase one's first two years. U.S. exports of manufactured goods to China were running only 60% of the agreed level and U.S. energy exports less than 50%. (https://www.piie.com/…)
All of which raises a question: What does the Biden administration intend to do about these shortfalls? Alas, the answer is unclear.
In a major policy speech last October, U.S. Trade Representative Katherine Tai said the administration would push China to honor its commitments. She didn't elaborate. (https://www.dtnpf.com/…) Vilsack was equally vague in his recent testimony, saying the administration was putting the Chinese on notice that "we want them to live up to the phase-one agreement."
The administration is starting to feel some pressure on this issue. Iowa's two senators, Republicans Charles Grassley and Joni Ernst, wrote a letter to the president encouraging him to "engage with China and seek an additional agreement that includes target purchases of U.S. agriculture products in the coming years."
(A new agreement would be needed to increase the prescribed purchase levels but not necessarily to continue the current ones. According to a clause in the phase-one pact, "The Parties project that the trajectory of increases in the amounts of manufactured goods, agricultural goods, energy products, and services purchased and imported into China from the United States will continue in calendar years 2022 through 2025.") (https://ustr.gov/…)
During Vilsack's House Ag Committee appearance, Republicans pressed the point. As DTN Ag Policy Editor Chris Clayton reported, Kansas Representative Tracey Mann said, "It feels like China sold America a bill of goods and the Biden administration has made no effort to rectify the situation." (https://www.dtnpf.com/…)
In response, Vilsack said Tai is leading the administration's efforts to figure out how to "walk a fine line with China" in recognition of the resumption of China's role as the top export market for U.S. agriculture.
"It's not correct to suggest we haven't done anything. It is indeed correct to suggest that we have asked the Chinese to increase more," Vilsack said.
Beyond such generalities, however, administration officials have yet to go. Are they working on another round of formal talks? New tariffs on Chinese goods, in addition to those the Trump administration imposed before reaching the agreement, which both administrations have left in place? Invoking the agreement's dispute-resolution mechanism?
As Brookings Institution fellow David Dollar sees it, the administration is in a bind. "U.S. exports and strong and different sectors of the U.S. economy are prospering by selling to China. To re-ignite the trade war in this environment would be bad for the U.S. economy. On the other hand, China did not meet the targets in the phase-one deal and Biden is likely to be criticized as soft on China if he gives them a pass." (https://www.chinabusinessreview.com/…)
Dollar thinks the administration "is likely to leave the trade situation in limbo for 2022." That wouldn't be shocking. It was implicit in Tai's October policy speech that the administration would focus on making America's exports more competitive as much as on trade negotiations. In other words, trade policy would rely heavily on industrial policy -- measures like the so-called Chips Act, which would provide $52 billion for domestic semiconductor manufacturing.
If the administration does decide on new talks, though, China isn't likely to roll over and play dead. Its arguments could include:
-- Don't blame us for the shortfalls; blame COVID-19.
-- The agreement said purchases would be "at market prices based on commercial considerations." We didn't have enough commercial demand to buy more.
-- We're making progress toward the prescribed levels. After falling $13 billion short of $40 billion in ag purchases for 2020, the 2021 shortfall was only $3 billion.
-- We delivered on all but seven of our 57 promises to cut ag non-tariff barriers.
-- We'd be able to buy more from you if you lifted those 25% tariffs on your imports from us.
Note that many of these arguments focus on ag, which was always the sector where the Chinese had the most give. For Biden's trade team, the bigger problem is the much larger misses in purchases of manufactured and energy products.
Meanwhile, American importers of goods from China are complaining about those steep tariffs, which they, and ultimately American consumers, pay.
Maybe Dollar is right and the administration will temporize. But the pressure to do something will likely strengthen. Stay tuned.
Urban Lehner can be reached at email@example.com
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