Ag, China Trade and Biden's Agenda

OMAHA (DTN) -- While China has moved aggressively to meet its agricultural import goals under former President Donald Trump's phase-one trade agreement, the current U.S. trade ambassador on Monday said the Biden administration will demand China seek more meaningful reforms in a new round of trade talks.

U.S. Trade Ambassador Katherine Tai on Monday laid out the Biden administration's view of China trade, indicating the array of tariffs placed on more than $350 billion of Chinese imports would remain. Tai also opened the prospect that U.S. importers could receive tariff exclusions in some cases.

Tai spoke to the Center for Strategic and International Studies. Her speech comes as U.S. farmers have seen exports to China take off with the implementation of the phase-one agreement. Trade data shows no other industry has benefited from the trade deal as much as agricultural commodities, even with a high volume of complaints over shipping containers and port congestion.

Tai said phase one "has stabilized the market, especially for U.S. agricultural exports." But an analysis shows that while certain sectors such as agricultural have benefited, there are shortfalls in other areas.

Through July, the U.S. has exported $15.7 billion in agricultural products to China, more than twice the total for the first six months of 2020, according to U.S Census data. The data is skewed, though, because of the impact the COVID-19 pandemic had on overall global trade in the first half of last year. China accelerated imports of agricultural products in the second half of 2020, hitting $26.4 billion for the full calendar year, a record total, but still $10.2 billion below the initial commitment.

Agricultural exports to China under the phase-one trade agreement were expected to hit $40.4 billion for 2021 under the deal.

CHINA's TRADE UNCERTAINTY

While pointing to the challenges in industries such as steel, solar panels and semiconductors, Tai added, "U.S. agriculture has not been spared either. While we have seen more exports to China in recent years, market share is shrinking and agriculture remains an unpredictable sector for U.S. farmers and ranchers who have come to rely heavily on this market. China's regulatory authorities continue to deploy measures that limit or threaten the market access for our producers -- and their bottom line."

Tai complained in her remarks that China continues to ignore global trading norms, undercutting businesses and workers around the world. Instead of reforming in recent years, "Beijing has doubled down on its state-centered economic system," Tai said. "It is increasingly clear that China's plans do not include meaningful reforms to address the concerns that have been raised by the United States and many other countries."

Tai used the speech to stress that the best options for the U.S. to counter China is to adopt President Joe Biden's infrastructure and domestic policy agenda, which now is caught up within internal conflicts among the moderate and liberal factions of Democrats on Congress.

"We must make smart domestic investments to increase our own competitiveness," Tai said. "We must invest in research and development and clean-energy technology and incentivize companies to buy American."

Domestic investment, Tai said, is one strategy for the U.S. to defend its interests and boost competitiveness globally.

"Repairing our roads and bridges, modernizing our ports, and delivering expanded broadband are the kinds of investments that will begin to give American workers and businesses the boost needed to embrace their global competitiveness," Tai said.

Tai added, "China and other countries have been investing in their infrastructure for decades. If we are going to compete in the global market, we need to make equal or greater investments here at home."

Despite criticisms of what the phase-one deal did not accomplish, Tai said she will use the agreement for initial engagement with China by examining the purchase commitments China made to industries, including agriculture. She noted, "Our objective is not to inflame trade tensions with China," adding she is committed to bilateral talks.

Along with that, the administration will start a "targeted tariff exclusion process" that will aid industries struggling to find other alternatives to import products from China, or incapable of producing those products in the U.S. The administration is considering some tariff exclusions as economists also have become increasingly concerned about inflation challenges.

Still, Tai stressed the U.S. will continue trying to address "China's state-centered and non-market trade practices that were not addressed in the phase-one deal." And the U.S. will use a range of tools to address those practices, she said. Tai's comments, though, also noted these market issues have centered around China ever since the country was voted into the World Trade Organization in the early 2000s.

VILSACK ON CHINA

Speaking to reporters separately on Monday, Agriculture Secretary Tom Vilsack said it is "absolutely appropriate" for Tai and her staff to examine the state of the phase-one deal. Looking beyond export sales, Vilsack said the deal listed 57 various sanitary and phytosanitary goals for China. While Chinese officials were aggressive early on in approving U.S. processing plants for export and removing some other barriers, little or no progress remains in a few key areas. One key area where little movement has happened is in biotechnology approvals, the secretary said.

"I think it's fair to say that American agriculture has obviously benefited from the purchases being made by China," Vilsack said. "And a lot of work and effort went into establishing relationships in China. Having said that, I think it is important and I think it's essential that we continue to look for ways we can diversify our efforts."

The secretary added, "There are so many complexities to the Chinese relationship that it is fair to say at any point in time something can affect this relationship."

TAI ON CPTPP

While talking about partnerships with Europe, the G7, G20 and the WTO, Tai also did not speak directly about the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) until she was asked. While the U.S. led the negotiation that initially created TPP to counter China's influence, one of Trump's first actions in office was to walk away from the now 11-nation deal. Just last week, China submitted a paper to join the deal. Tai walked around the question of whether the U.S. would return to TPP.

"What I would say is we care deeply about the partners in that region of the world, in particular, because I think the competitive pressure is on them because of geography in particular," Tai said.

In terms of the CPTPP, Tai said the trade deal was "negotiated several years ago now" -- six years ago, actually. "The world economy has shown us realities in the intervening years that I think we really have to pay attention to," Tai said.

"So, you know, in terms of our continued investment and engagement with our partners and allies in the Indo-Pacific, I think that what we need to do is fully engage and address the realities and challenges that we see today.

PHASE-ONE TRACKING The phase-one agreement negotiated by the Trump administration has re-established China as the top export destination for agricultural products.

Chad Bown, an economist with the Peterson Institute for International Economics, has been tracking China's progress under the phase-one deal. Through August, he projects China has purchased $17.9 billion in U.S. agricultural products, hitting about 89% of the target commitments. Given that China aggressively buys U.S. soybeans in the last quarter of the year, China may be on pace to hit that $40.4 billion goal.

Overall, China also was expected to buy $200 billion in U.S. goods. Bown projects China has hit about 62% of that target goal so far. https://www.piie.com/…

Tai's full remarks: https://ustr.gov/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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