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THURSDAY, JUNE 7, 2018
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HERE for yesterday's quote from Dept. of Finance Canada.
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IN THE CHINA TALKS: FOCUS ON THE ISSUES
"If we go into any discussion with the Chinese ... thinking that these problems can't be solved, then we are accepting the inevitable conflict between our economies. Frankly, I don't think that's necessary."
Erin Ennis
April 25, 2018
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Erin Ennis is the Senior Vice President at the U.S. China Business Council. Somehow it was fitting that she was the anchor leg, the last speaker, at GBD's April 25 colloquium on the future of U.S.-China trade. That's not because she once ran in the Marine Corps Marathon but because she crisply put the issues of the day in perspective. The heart of her presentation was a review of five issues - four plus one, as she explained it. Each of these, she said, arises from fairly specific causes, and each will require specific remedies.
The issues she highlighted were:
The Section 201 Tariffs that the U.S. has put on imports of solar panels and washing machines from China (and other countries). These were instituted following a successful petition for relief under the "safeguard" provision of the Trade Act of 1974. The action on this matter is now with the WTO and with China, which could retaliate against the U.S. tariffs, though it has not yet done so.
The 232 Tariffs. These, of course, are the tariffs the U.S. put on imports of steel and aluminum products from most sources, including China, on the grounds that U.S. national security requires strong steel and aluminum industries. Ms. Ennis's presentation was a useful reminder that, for all the current protests against America's actions in this area, the predicate for it was concern about the glut of these products in global markets. As Ms. Ennis put it:
I think there is general consensus among the business community and the global community that global overcapacity is a problem.
And China has been the key driver of that overcapacity for both steel and aluminum.
The Section 301 Tariffs. The tariffs the U.S. has threatened to put on imports from China under Section 301 of the 1974 Trade Act are perhaps the largest single element in the current war of words between the U.S. and China, and large swaths of the U.S. business community do not want to see such tariffs imposed.
They are, however, concerned about the underlying issues - China's often questionable means of acquiring U.S. intellectual property and its practice of demanding technology transfers from companies investing in China. This passage from Ms. Ennis's remarks is illustrative:
[T]his isn't just outright requests for technology to be transferred. This is instances that companies find where they have to provide proprietary information in ways that they don't to any other government. During licensing processes. During the process to get your environmental impact assessment done. To get your certification that you have an energy-efficient factory that's being built.
Issues like these need to be specifically addressed, Ms. Ennis said, and each will require specific solutions.
The U.S. Trade Deficit. Again, Ms. Ennis called for specific solutions. She said:
That too will require very different, but specific, actions if we were to do that. Either China buys more of our stuff, we buy less of their stuff, [or] a combination of all of those things. We could always go to a value-added calculation of the trade deficit and reduce our need to do all those kinds of things, which is something we should consider regardless. But obviously very different solutions.
The AD/CVD Cases. Numerous antidumping and countervailing duty cases have been filed in the U.S. against imports from China. They would be a source of friction in any case, but with respect to China there is the added irritant that the U.S. often treats China as a non-market economy in its analysis of the underlying facts, a practice China strongly resents. In fact, however, the one case Ms. Ennis mentioned under this heading involved the surcharge - 179 percent - that China began adding to imports of sorghum from the U.S. in April. Officially, this was the result of a Chinese antidumping investigation, and it was enough to cut off those exports from the U.S. The sorghum-loaded ships that were on route to China when the announcement was made turned back.
In summary, Ms. Ennis persuasively made the case that the sources of tension in the U.S.-China commercial relationship need to be addressed specifically and directly and that trading one issue off for another is not likely to work. Back in April, when this presentation was given, the early May meetings in Beijing between U.S. cabinet secretaries - Secretary Mnuchin, Secretary Ross, and Ambassador Lighthizer - were only a speculative rumor and Secretary Ross's trip in June was not even thought of. Those events have now occurred. Even so, the thought Ms. Ennis expressed about such meetings last April still seems relevant. She said:
I would be surprised if the outcome of a visit by two US cabinet secretaries to China, purportedly to reduce tension overall in the relationship, somehow resulted in an announcement that we've gotten a reduction in the trade deficit, and therefore we are stopping action on 301. I think that that would be a disservice to the issues that were rightly raised in the 301 case, even as much as I think the trade deficit does need to be reduced.
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Cabinet secretaries have gone to Beijing and come back, interspersed with high-level Chinese officials coming to Washington. At this point, it is still difficult to see how any of the issues mentioned above might be resolved. Among the latest elements to be thrown into the mix is a reported offer by China to buy an additional $70 billion worth of imports from the U.S., provided, of course, that the U.S. does not follow through with its threat of tariffs under Section 301. What would it mean if such a deal were suggested? Would it simply confirm Ms. Ennis's fear that the U.S. might trade off one issue for another, leaving most of the causes of concern unaddressed? Or would it be a tactic for allowing further negotiations to proceed? Time will tell. In the meantime, we'll conclude with a fuller version of today's featured quote from Erin Ennis and a short comment from the Secretary of the Treasury.
MS. ENNIS:
All of this is to say is that there are solutions to these problems, and if we go into any discussion with the Chinese in thinking that these problems can't be solved, then we are accepting the inevitability of conflict between our economies. And frankly, I don't think that's necessary, because I think that we have the tools, and we all are sufficiently smart about where the problems are and what would solve those problems, that that should be the basis of what any negotiation is, so that we can actually get to resolution and improve all of the issues we all are largely in agreement on.
TREASURY SECRETARY MNUCHIN, speaking last week from the G7 Finance Ministers' meeting in Whistler, British Columbia:
I want to be clear. This isn't just about buying more (U.S.) goods. This is about structural changes.
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Erin Ennis at GBD. This a link to GBD's transcripts of the opening remarks of Erin Ennis at the GBD colloquium on "Section 301 and the Future of U.S.-China Trade," which was the source for today's featured quote.
A 301 Submission takes you to the statement submitted to USTR by the U.S.-China Business Council in connection with USTR 301 investigation of and proposed actions in response to China's acts and policies regarding intellectual property and technology transfer requirements.
Mnuchin in Whistler is a Reuters story with the quote from Treasury Secretary Mnuchin during his participation in the G7 Finance Minsters' meeting Whistler earlier this month.
The Sorghum Tariffs is an April CNN story about China's new tariff on sorghum from the United States. (We readily confess this case is something of a mystery to us. It has been described as an antidumping case, with the result flowing from an antidumping investigation, and yet the reported complaint is that the U.S. product is being subsidized.)
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