MNI EXCLUSIVE: China May Seek Phase 1 Changes, Tariff Cuts

Chinese policy advisors are already preparing for Joe Biden to take over as U.S. president, telling MNI bilateral talks could begin as early as the second half of 2021 and that Beijing may seek lower U.S. tariffs as well as easier commitments for purchases of American exports under a Phase One trade deal the Democrat has called a disaster.

While advisors say Biden, who has promised to work with allies to coordinate a response to China over issues such as theft of intellectual property rights, is unlikely to remove restrictions on high-tech U.S. exports, some told MNI he might agree to lower tariffs in exchange for tougher environmental and exchange rate management rules.

China has struggled to meet promised purchases of U.S. goods and services in a pandemic-disrupted year, and Beijing will want to lower targets, extend deadlines, or allow for more goods imports instead of services.

"Biden won't entirely give up the Phase One deal, which is in U.S. interests, and he will not reduce tariffs without raising other requirements," said Luo Zhenxing, a researcher at the Institute of American Studies at the Chinese Academy of Social Sciences.

PHASE ONE DISASTER

Talks are not likely to begin before the second half of 2021, as Biden assembles his team and attends to pressing issues such as the pandemic, said Luo and a source close to China's government.

Biden's campaign has called Donald Trump's trade war with China followed by the Phase One deal an "unmitigated disaster", inflicting pain on American workers and farmers while doing nothing to curb Beijing's abuse of trade rules.

A Biden administration may ask for tougher environmental protection rules in return for relaxing tariffs, said Luo and Shi Yinhong, a U.S. expert at Renmin University and an advisor to the State Council.

Biden may also insist on stricter requirements for management of the yuan, one advisor said.

Working-level contacts between Chinese officials and members of Biden's team are already candid, said Lv Xiang, a U.S. expert also from CASS, though the chances are diminishing that a Democratic administration would pursue a more ambitious Phase Two deal.

Yet Biden's multilateral approach may make him easier for Beijing to work with than Trump, allowing cooperation over climate change, pandemic response and even the fraught issue of World Trade Organization reform, said Wang Huiyao, president of the Center for China and Globalization.

Under Trump, the U.S. has argued China's status under WTO rules as a developing nation has provided it with unfair advantages.

Biden and China could achieve a consensus on "safeguarding multilateralism and promoting globalisation," said Xu Hongcai, deputy director of the Economic Policy Commission of the China Association of Policy Science, adding that China could purchase more U.S. treasury bonds if the U.S. fiscal deficit expands.

Yet, any partial rapprochement between the two countries will not alter the fundamental differences between them as the U.S. increasingly views China as a global competitor, said He Weiwen, a former economic and commercial counsellor at the Chinese Consulate General in San Francisco and New York.