TWN Info Service on WTO and Trade Issues (Sept18/03)
12 September 2018
Third World Network
China to stand firm against US unilateral punitive tariffs
Published in SUNS #8747 dated 5 September 2018

Geneva, 4 Sep (D. Ravi Kanth) - China is set to stand firm as the United States prepares the ground for imposing unilateral punitive tariffs on imports of $200 billion of Chinese goods under the controversial US Section 301 provisions, according to people familiar with the development.

Although the Section 301 measures are found to be illegal by a World Trade Organization panel and the US is reneging on assurances given to the panel and the membership, the US is determined to intensify the trade war with China by pressing ahead with another round of crowbar measures such as punitive duties of around 25% on $200 billion of Chinese goods.

The US has repeatedly justified the proposed duties on grounds that China has engaged in the theft of American intellectual property and forced technology transfer policies.

At a time when Canada and the European Union are wobbling under unprecedented pressure from US President Donald Trump, China has remained unwaveringly firm with its two-pronged strategy: prompt and measured retaliatory duties against the American goods and simultaneous launching of a fresh trade dispute against the US measures at the WTO.

The US took umbrage at China's resolute response to Washington's unilateral measures with President Trump threatening to double the coverage of Chinese goods because of China's refusal to accept American measures.

During the last round of trade negotiations on 23 August, the US and China failed to make progress in Washington, after the US made maximalist demands.

The two sides had held discussions amid continued retaliatory tariffs on $16 billion of each other's goods,  that came into effect on 23 August.

The US and China though exchanged views on how to break the deadlock for bringing normalcy in their smoldering trade relations, with each expecting the other to blink first, said an analyst familiar with the negotiations.

The US and China "exchanged views on how to achieve fairness, balance and reciprocity in the economic relationship," said Lindsay Walters, the White House deputy press secretary, on 24 August. She did not indicate whether the two sides made any concrete progress.

On 23 August, the US pressed ahead with its decision to slap punitive 25% tariffs on another $16 billion of Chinese goods, in addition to that imposed on imports of $34 billion of Chinese goods that were already subjected to duties last month on grounds that China engaged in "unfair trade practices related to technology transfer, intellectual property and innovation", under Section 301.

In addition, the US trade representative's office had set in motion a process for a likely imposition of tariffs on another $200 billion of Chinese goods by the end of next month under the condemned Section 301 provisions.

China promptly retaliated with its own fresh tariffs on $16 billion of imports of American goods, which include fuel, steel products, auto, and medical equipment. The retaliatory tariffs imposed by China came into effect the same time that the US tariffs were imposed on Thursday.

China is also expected to file a fresh complaint at the World Trade Organization against the US duties under Section 301 that was found to be violative of global trade rules.

China has consistently maintained that it is ready to address market access concerns, including the renminbi exchange rate issue, raised by the US.

Beijing, however, insisted that the US must abandon the unilateral tariffs that violate core global trade rules when the talks are underway.

Given the inflexible positions adopted by the US, which has raised maximalist demands, China wants certainty and predictability that the US will honour compromises reached during the talks.

Subsequently, US President Donald Trump had pronounced that there is not going to be much progress from the talks. In an interview with Reuters, Trump said ending the trade battle will "take time because China's done too well for too long, and they've become spoiled. They dealt with people that, frankly, didn't know what they were doing, to allow us to get into this position."

Trump also said, "I think China is manipulating their currency, absolutely. And I think the euro is being manipulated also."

"What they are doing is making up for the fact that they are now paying a lot for - hundreds of millions of dollars and in some cases billions of dollars - into the United States treasury - and so they're being accommodated and I'm not, and I'll still win," he suggested.

Clearly, there is no common ground for resolving the differences as the US continues to shift the goalposts during the negotiations, according to a person familiar with the negotiating positions of the US.

On the ticklish issue of China's exchange rate policy, Beijing has already signalled that it has left the yuan's exchange rate against the dollar to be decided by the market.

A senior official of China's internet behemoth Alibaba told analysts during an earnings conference call on Thursday that "if US goods become too expensive because of tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world."

Surprisingly, American businesses remain opposed to their administration's strategy of escalating the trade war with China. The US Chamber of Commerce had expressed sharp concern on 20 August over the escalating trade war with China, cautioning that the proposed action will "dramatically expand the harm to American consumers, workers, businesses and the economy."

Meanwhile, President Trump, according to a report in The Wall Street Journal on 3 September, will "put his bare-knuckles negotiating strategy to a new text," as the US and Canada meet on 5 September for make-or-break negotiations for revamping the North American Free Trade Agreement (NAFTA).

Last week, after talks between the US and Canada for revamping the NAFTA, which includes Mexico, floundered, Trump intensified pressure on Canada and other trading partners, including the European Union, threatening that if they refuse to accept Washington's trade demands they will risk losing "free military protection".

The US and Mexico reached a comprehensive deal on 27 August. Mexico agreed to stringent rules of origin provisions, enhanced patent protection norms of 10 years for new drugs, called biologics, and other new drugs, scrapping of the dispute settlement resolution mechanism, and accepted the controversial lab our standards involving minimum pay of $16 per day.

After securing the agreement with Mexico on its terms, the US piled the pressure on Canada with its specific demands.

Canada, however, found it difficult to agree to some of the US demands. Among others, they require Canada to dismantle its dairy board, which manages the supply of dairy and poultry products, particularly in the Quebec region, re move "cultural protection" for Canada's print and broadcasting sectors, the scrapping of the dispute settlement mechanism for resolving trade and investment disputes in the revamped North American Free Trade Agreement, and agree to stringent norms for patent protection for biologics and other new medicines.

President Trump insisted that the US will not make any concessions during the talks with Canada, according to off-the-record remarks made to Bloomberg on 30 August.

The Canadian government found it difficult to agree to the US demands once they were reported in domestic media.

Canada's foreign minister Chrystia Freeland tried to downplay the US demand s, suggesting that "with goodwill and flexibility on all sides, I know we can get there."

Canada, however, maintained that it would sign a deal that is good for its people. It will hold another round of talks on Wednesday that would suggest whether Canada will agree to the US demands, said an analyst in Geneva, who asked not to be quoted.

Meanwhile, President Trump notified the Congress "of his intent to sign a trade agreement with Mexico and Canada, if it is willing - 90 days from now," the US trade representative, Ambassador Robert Lighthizer, said on Friday.

Even before the beginning of the crucial negotiations with Canada on 5 September, President Trump began threatening Canada during the weekend.

He said in a tweet issued on Saturday that it would be left out of the new NAFTA if "fair deals for the US" aren't reached.

"There is no political necessity to keep Canada in the new NAFTA deal, if we don't make a fair deal for the US after decades of abuse. Canada will be out. Congress should not interfere with these negotiations or I will simply terminate NAFTA and we will be better off," he threatened, according to The Wall Street Journal on 1 September.

"We shouldn't have to buy our friends with bad trade deals and free military protection," Trump tweeted on Sunday, making it clear that Canada must fall in line with the specific demands raised by Washington or face the prospect of being excluded from the redesigned North American Free Trade Agreement.

Trump also threatened to withdraw from the WTO last week.

The EU, which is the world's biggest trading bloc, has started showing sign s of genuflecting to the US demands last week. The EU trade commissioner Cecilia Malmstrom has indicated that Brussels is ready to negotiate a zero tariff deal on cars if the US reciprocated, according to a report in the Financial Times on 30 August.

The US President constantly hammered the EU for imposing 10% tariff on imports of passenger cars compared with the US duties of 2.5%.

"We are willing to bring down even ... our car tariffs to zero, all tariffs to zero, if the US does the same," Malmstrom said, according to the report in FT.

The EU is also ready to provide more access for American beef and soybeans in the face of Chinese retaliatory measures.

In short, Canada and the EU are showing signs of yielding to Trump's aggressive cowboyish trade strategy: either my way or the highway. China, however, has refused to budge against the renewed US threats.