Rethinking Trade - Season 1 Episode 20: Fast Track
COVID-19 Vaccine Access vs. Trump Trade Protections for Pharma

Rethinking Trade - Season 1 Episode 21: China Phase 2

Donald Trump has made a big deal out of his “big deal” with China. But the first phase of this plan, with trade rules that actually encourage U.S. companies to outsource jobs to China alongside agreements by the Chinese government to increase purchases of U.S. goods, has pretty much flopped.

The second phase, meant to contain stronger labor protections and other rules that would’ve actually made a difference here and in China, never happened. That’s a real problem, because U.S. trade policy with China has enormous implications for working people both in the U.S. and in China, where labor conditions remain bleak.

On this episode we break down Trump’s China trade deal and how it became yet another one of his broken promises to working people.

Transcribed by Garrett O’Brien

Ryan:

Welcome back to Rethinking Trade, where we don’t just talk about trade policy, we fight to change it. I’m Ryan, and I’m joined once again by our in-house trade expert Lori Wallach.

Lori, back at the beginning of the year, Trump was making a big deal out of what he called his “Phase 1 trade deal with China.” He made perhaps a bigger deal out of what would follow, Phase 2. But Phase 2 is pretty much MIA right now. Let’s talk a bit about this deal and maybe you can help us figure what the hell happened to Phase 2.

Lori:

So, China trade has obviously been a big deal in the last couple of years. And there are two different things going on. There are the tariffs that were put in place to try to counteract China’s subsidies and their misalignment of their currencies. All of which are basically ways in which China, the government working very closely with companies, some of the companies are owned by the government or military, figures out ways to make sure that goods sent to the US actually are priced at below what they really cost to make. Meanwhile, they come up with ways to make sure that goods that went from the US to China become too expensive to be competitive. This boils down to what some people call “trade cheating” and there are lots of different ways to go about it. So, those tariffs that got put in place under regular old trade law, domestic law, and called Section 301 of the Trade Act and that basically allows tariffs to be put in place to counter the subsidies another country is using. So, to some degree doing that domestically was leverage ostensibly to then set up a negotiation to get China to change the underlying policies that create those subsidies that rewire those counterbalancing tariffs to make the goods when they come here fair. So, overtime, basically what happened is they were not paying every time the goods came here it just became too expensive for Chinese foods to come here so China stops sending goods here. That’s when you can negotiate usually to change the policy in this instance though the Phase 1 deal instead of dealing with the things that ostensibly those tariffs were supposed to be countering like slave labor and forced labor and cheating on currency values to make the Chinese currency artificially lower so the products are cheaper than they really are or good old government subsidies paying companies. No of that stuff was actually covered in Phase 1. Instead, Phase 1 actually had stuff in it that makes it easier to offshore US jobs and invest in China. So, Phase 1 had things like Wall Street has new rights to invest in China, in new sectors. How is it a good idea to make it easier for dollars to go to China to create jobs there? Or Phase 1 had China agreeing to stricter protections of intellectual property rules which seem counterintuitive in the sense that the US is a good place to invest because basic rights and the rule of law operates here. So somehow making it easier for companies to be able to have their cutting-edge designs and technologies protected if they're made in China it is still not clear about why that is a good thing for US workers. It all boils down to its not. So, Phase 1 was what China was willing to do and that was in part because it was in China’s interest. It’s a thing that can help China get more money to invest in monopolizing what it sees as industries of the future and they have a plan for that called China 2025. So Phase 1 didn’t really get a lot of love in congress from Democrats and certainly didn’t get anything from unions because it basically was against the interest of workers so then we heard well that’s all that China agreed to do. There is no doubt they were doing it without us telling them that we wanted them to, it’s in their interest. So Phase 2 was supposed to be the real stuff, the hard stuff, labor rights and keeping out forced labor goods made by Uighurs and dealing with the currency manipulations that make it very hard for US exports to get into China and get their goods dumped here and very importantly there was supposed to be disciplines on subsidies. That’s the stuff that would’ve made a difference on working people here and that never happened and now it looks like it never will.

Ryan:

Speaking of things never happening, before we get too much into Phase 2, I wanted to go back to Phase 1 real quick. How much of Phase 1 actually happened? What did and didn’t happen in that window? And, you know, is that something that was just sold to the public or were there real things going on in the background there?

Lori:

So, there were two levels to Phase 1. One was things China ostensibly was going to do to change their policies. And a bunch of those things were things China wanted to do anyway. They were going to make it easier for US dollar investment to happen in China because they wanted the money to make more jobs in China. China was going to say that they were going to protect intellectual property better because they wanted US companies to relocate their production there and bring their technology there. So, those were policy shifts China was making whether they get enforced is a different matter. The sort of meat and potatoes part of phase1 was supposed to be agreements by the Chinese government to purchase specific amounts of more US goods and that in itself was really kind of bullshit because having one time purchase agreement of “I will buy more stuff over the next two years” in no way phases out China trade problems. That’s just useful for Trump to say, “Oh look I got China to buy some stuff before the election.” But even as narrow as that was as an idea, those sales haven’t happened. So, there were specific requirements to buy more US agricultural exports that is maybe at 30% of the level of what should be necessary to meet that commitment. There were promises to buy more US liquid natural gas. Separate from the environmental disaster that plan is, that has not come to fruition. So, the meat and potatoes part basically ended up with some potato peels and a couple of bones. It was not as narrow as that would have been. The “We’re selling a lot of stuff” outcome that they promised. And the policy stuff was stuff China was already doing bit it’s against our interest. It promotes outsourcing so that the whole current picture of the so-called Phase 1 has come to pass.

Ryan:

And that would be a good time to bring up the question of the day, which is where is Phase 2? Does it exist or is it just another one of Trump’s broken promises to American workers?

Lori:

There is no Phase 2 China trade negotiation. There will not be a Phase 2 China trade deal. I mean for one thing, there is only a limited amount of time before the end of this president’s term, I can’t presuppose the outcome of the election but looking at the state of the relationship between the US and China there are not even conversations about the preceptive second phase deal but also there is, I would say, it is more likely that Donald Trump is going to get us back into the Paris Climate Treaty than there is going to be a Phase 2 deal under the Trump administration with China. Which is to say fat chance.

Ryan:

So, it sounds like Phase 2 is probably not happening. Does that matter? what is the significance of it not happening?

Lori:

You bet it matters! That was all the stuff that was supposed to help US workers and US small businesses. So, Phase 1 was, you know, what the big banks wanted, what the biotech companies wanted, what Pharma wanted. Phase 2 was all the stuff that was supposed to make a difference to try to stop the flood of subsidies imported Chinese goods that are wiping out US production but also you know ostensibly how investment decisions are made has to do with where companies think that they can export from and what the import competition is going to be. So, if you don’t actually fix those actual underlying structural issues in China you either have to fix those or you have to figure out how to actually just stop some of that Chinese stuff from coming in if it’s going to be unfairly subsidized. And Phase 2 was all of that. It was all the stuff that really mattered. It is really only the tariffs that are keeping us from having an ever bigger Chinese deficit and if you don’t fix the underlying problems you’re not going to actually create the kind of trade relationship between the US and China that would actually put people first.

Ryan:

And we’ve said this many times on the show but we do need a new progressive approach to China that centers labor, human, and environmental rights above the multinational corporation and authoritarian government collusion that we have now. After November we’re gonna have to carve that path regardless of who wins. In closing, maybe you could give a snapshot of what they could look like and what kind of policy changes it might entail.

Lori:

So, the good news is that there are now 30% tariffs on $350 billion worth of Chinese goods as the background. And that is a Section 301 tariff and it was painful to get there a lot of people could argue with the way in which it was done but the reality is that it’s the new normal and that creates a lot of leverage. That leverage basically has shifted the trade deficit with China. So, it hasn’t fixed the trade problem, but it has brought down the bilateral deficit. So not the trade is shifting to other countries, so you need a broader trade policy that deals with the same issues: cheating on currency, subsidies, in other countries. But I would say that with respect to China, there are two things to think of going forward especially because you have that leverage from those tariffs. One are there any ways that the US and China actually can negotiate on some rules that are kind of the Phase 2 menu of fixes? I’m skeptical about it but it’s worth trying and the way to try it is to put up the leverage. And we’ve got that leverage from those tariffs. But we might be the biggest import market but we’re not the only import market. So, we need other partners in Europe, in Japan, in Canada, in Australia et cetera to join us in shutting down the markets available to China if it continues  its current practices. The reason why our tariff regime has helped bring down the bilateral deficit but hasn’t helped change China's practices is because the current practice can continue and there are still other places where goods made in that cheating way can continue to go. So yes, there is negotiation strategy but also there has to be a recognition that to some degree unless the pain level gets a lot higher for the Chinese government, maintaining their status quo is something they are going to not change unless given from their perspective would be painful but the pain of not doing so gets a lot higher. So, then you get to what the hell do we do. And we have a lot of capacity domestically that has not been used. So for instance, with respect to labor rights and human rights, under existing law right now we could be shutting down imports from for instance we could have under existing law we could have a ban on imports of all goods connected to the Uighur slave labor camps and to goods suspected to be made by people in forced labor in China. And you basically could as a president put that in place under existing authority congress is delegated by statute. Or for instance, we could right now ban Chinese firms from listing on the US stock markets effectively do that by requiring to actually provide all the information that US firms must provide about who owns the firms and what the investment status is all things that a lot of the government owned or People’s Liberation Army military-owned firms will not make public. So that basically we aren’t having our stock market fuel investment that is unfair and that is against US workers. With respect to specific sectors of the economy, we also have a lot of laws that let us put countervailing measures against what is effectively subsidizing goods by dumping toxins and undermining environmental standards. So not only can you just keep stuff out for a human and labor rights violation, but you can basically sanction countries for importing goods that either violate multilateral environmental agreements or are like subsidized by a matter of dumping their toxics and polluting. So, these are all tools that a new president has that the old president has had and not used and those tools using domestic law are going to have to be an important part of dealing with China. And finally, we need to actually, through existing domestic law or imposed domestic law, deal with the currency issues. So right now China is holding onto so many US dollars in their reserve that even if they are not actively intervening in currency markets to bring down the value of their currency they are bringing down the value of the US dollar to a place where our exports aren’t competitive. So this all sounds quite wonky and confusing and down in the weeds, the cut to the chase on this whole question is we have international tools, we have domestic tools. A lot of what is going to happen is going to happen domestically and there are going to be a lot of bumps in the road along the way that folks are just going to have to hitch up their  seatbelts and go for the ride.

Ryan:

Rethinking trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit Rethinktrade.org as well as tradewatch.org to educate yourself and find out how you can get involved in work we are doing in the fight for fairer and more equitable trade policies.

 

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