A new report states that the U.S. is not interested in decoupling from its trade relationship with China and asserts instead that it is Beijing that has been making moves in that direction.
The annual report from the Office of the U.S. Trade Representative reiterates longstanding U.S. complaints about China’s “poor” record of compliance with its World Trade Organization obligations, including “violating, disregarding and evading WTO rules.” Interestingly, however, the report points out that the “vast majority of the harm that China inflicts upon other WTO members is attributable not to China’s periodic non-compliance with existing WTO rules, but rather to the daily impact of China’s state-led, non-market approach to the economy and trade.”
Not only has this approach “increased rather than decreased over time,” the report states, but it has also “turned decidedly predatory.” Specifically, China has been “relentless” and “does not act with moderation” as it seeks “to secure the dominance of Chinese enterprises, both in the China market and in global markets.”
Again this year USTR argues that existing WTO rules have proven ineffective at resolving, or simply not designed to discipline, many of the harmful non-market policies and practices deployed by China and that “solutions independent of the WTO” are needed. The U.S. has therefore continued to pursue a multi-faceted approach that “accounts for the current realities in the U.S.-China trade relationship and the many problems that China generates for the United States and other trading partners, both now and likely in the future.” This approach includes (1) domestic investment and policies to support “the industries of today and tomorrow,” (2) bilateral engagement with China focused on the most fundamental concerns “rather than on resuming dialogues focused on isolated issues,” (3) exploring how best to use and improve domestic trade tools, and (4) working with others to build support for solutions to the many problems China has created for the global trading system.
However, the report emphasizes that the U.S. is not interested in decoupling from China, which “would not address” the problems enumerated in the report. The U.S. approach is “more appropriately characterized as one of de-risking and diversifying,” the report states, as evidenced by the “targeted actions” that have been taken on export controls and outbound investment to protect national security.
By contrast, the report alleges, “China itself appears to be pursuing a decoupling strategy – and not just from the United States.” The report cites as an example the “dual circulation” strategy China rolled out in 2020. Under this strategy China – for now – is continuing to export to the world (often at predatory prices), to welcome foreign companies operating in China, and to import products needed by Chinese companies, especially in technology products. “However,” the report states, “once Chinese companies are capable of displacing the foreign competition in any particular industry in the China market, the Chinese state will no longer welcome foreign companies and their products.”
USTR concludes that this strategy “is best viewed as further evidence of China’s broader intent to re-shape the international order and move the world away from rules-based engagement premised on market competition.”
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