MNI EXCLUSIVE: US Stance Damps China’s Tariff Hopes

Recent statements by the U.S. on its stance towards China have tempered optimism among Beijing advisors, who now expect calls for more domestic reform to precede discussions on trade and a revival of the unfinished bilateral investment proposal as a replacement for the phase two trade deal.

Since President Joe Biden took office, many Chinese officials and advisors have urged the two countries to restore dialogue and cooperate on issues ranging from climate change to fighting the pandemic.

China's market reforms have also picked up pace, said an advisor who is close to the government. With momentum from the negotiations leading up to the EU investment pact, Beijing has shrunk the list of sectors closed to foreign investment seven times to just 30 from more than 100 in 2018. In a recent article published in party magazine Qiushi President Xi Jinping called for stronger protection for intellectual property rights, a thorny issue in its relations with the U.S.

However, Washington is in no rush to respond to Beijing's various suggestions going by the White House's adoption of "strategic patience" with regard to China relations and Biden's decision to evaluate all China policies, said Shi Yinhong, a U.S. expert from Renmin University and an advisor to the State Council.

In his first foreign policy address last week, Biden described China as the "most serious competitor" to the U.S. though he also said the U.S. stands ready "to work with Beijing when it's in America's interest to do so." A weekend phone call between U.S. Secretary of State Antony Blinken and China's top diplomat Yang Jiechi, the first high-level contact between the two countries, reportedly covered tension points, including Taiwan and Hong Kong, with Yang urging the U.S. to work toward a non-confrontational relationship and "correct its policy mistakes."

STATUS QUO

Advisors now admit that part of their circle put too much hope in the new administration and that while dialogue between the two could resume this year, it could be status quo on tariffs with Beijing continuing to purchase U.S. products to meet targets in the phase one deal.

Still, issues related to commerce will be easier to resolve than others marked by fundamental differences, said Shi, adding that the best scenario for China is if it can manage to lower purchase pledges in the trade agreement.

China, which has agreed to increase U.S. imports by USD200 billion over two years from 2017, has so far met roughly 58% of the first-year target, according to the Peterson Institute for International Economics. Purchases of soybean, a key product, rose 53% y/y in 2020. Analysts have said there is no sign of any let up in Beijing's purchases.

Rather than using fixed targets, the Biden administration would like to see more reforms in exchange for lower tariffs, such as greater transparency on subsidies for state-owned companies and their operations and further opening of the market, said the advisor close to the government.