Talking Trade blog
Dueling views on trade on display this week
Published 08 May 2019
Trade watchers should be buckled up for a wild ride this week. Two different settings provide the opportunity to witness competing visions for the future of global trade—an apparent showdown in the US-China negotiations and dueling meetings on e-commerce and digital trade.
First, the US-China trade war has taken a dramatic turn.
Last week’s visit by the US delegation to Beijing had apparently gone well, with little indications of major surprises. Indeed, both sides appeared prepared to enter the final stretch with talk of a deal within a matter of days.
Instead of a harmonious end, talks may be teetering on collapse instead. Over the weekend, the US side appeared to be caught by surprise by the Chinese response to US proposals.
While speculative, it is likely that the Chinese were unhappy with American plans to retain tariffs on Chinese products for the foreseeable future on at least some set of products. This part of the plan was probably not fully confirmed in writing until last week. From the Chinese perspective, nearly all the “heavy lifting” in these talks will be done by the Chinese. The only benefit in exchange will be the elimination of tariffs.
Of course, the US side will argue, this is precisely because the Chinese side has failed to fulfill all sorts of past commitments. Hence it is up to the Chinese to make all these concessions.
But from an optics perspective, China cannot be seen to be making all the concessions and remaining under both continuing tariffs and future tariff threats. Therefore, it is equally likely (and again speculative) that the Chinese have clarified that at least some of the changes requested by the Americans will not be locked down in law at this time, but will be handled by administrative guidance instead. That way, if the Americans do impose tariffs again, the Chinese are not bound by laws, but can remove or adjust the guidance or regulations as necessary.
This, of course, is precisely what the Americans were trying to avoid in the first place.
Faced with this prospect, US President Donald Trump has opted to up the ante, by threatening to impose two new sets of tariffs against Chinese products. First, starting on Friday morning, tariffs will automatically rise to 25% on US$200 billion in products on List 3 that are currently facing 10% tariffs into the United States from China.
Note that this action can—indeed—be taken by tweet. The internal processes needed under the Section 301 case that provides the legal context for this dispute have already paved the way for a tariff hike. Firms should be prepared for a tariff escalation to 25% from 10% on Friday. Watch the Federal Register for confirmation.
Second, USTR will open the internal processes under Section 301 to impose tariffs of up to 25% on all remaining Chinese imports to the United States. This threat cannot be carried out by tweet at this time, but will require a 90 day comment period to elapse.
If either tariff threat is imposed, the Chinese do not have the ability to retaliate with tariff escalation to match, although they could do a range of things instead. They could increase the tariff levels on American products imported into China. They could also start to aggressively target US services exports or tackle US invested firms on the ground, which have been largely exempt from the tariff wars thus far.
The latest Trump tariff threat, of course, is designed to facilitate conclusion of the trade negotiations. Talks are scheduled for Washington DC on Thursday.
It is certainly possible that the impeding escalation of tariffs will concentrate minds once more, leading to a very speedy conclusion of talks. Or not.
Either way, the coming few days promise more drama on the US-China front than trade watchers have seen in months-- a major escalation of the trade war will happen on Friday or a truce.
A second notable set of events takes place early next week that will also help shape global trade for the future. Dueling meetings are scheduled for Geneva and New Delhi for May 13-15.
The former is the setting for the first round of talks of what is called the “plurilateral” on e-commerce in the World Trade Organization (WTO). Not all WTO member countries have agreed to join negotiations on the topic, so only a subset of members (76 so far) will sit down to start.
These meetings are likely to be quite contentious, with competing visions of what the future of e-commerce and digital trade will look like and what sort of rules the WTO might decide to impose on member state participants to help structure this environment for trade. The very early policy statements are likely to expose variations in viewpoints, as members tend to stake out maximum positions at the outset of any talks. (See the EU’s release to get a sense of the challenges ahead and imagine how this one document might be viewed by others in the room.)
It will be tough for officials to figure out how to converge on a consensus in a grouping that covers the United States, China, Europe, Japan, Singapore, Australia and others.
While these mostly advanced and middle-income economies are meeting in Geneva, India has invited a group of developing and least developed economies to New Delhi to discuss what they are apparently calling the “Delhi Declaration.”
This document will cover more than just e-commerce, including issues of development and WTO reform. But some members of the grouping appear to have different perspectives on e-commerce from the members meeting in Geneva.
The dichotomy between general trade openness and restrictions came through loudly through a workshop held last week in Geneva at the WTO on something called the customs moratorium on electronic transmissions. For nearly 20 years, this temporary agreement has been rolled over. Now, however, many members are not interested in doing so automatically. This commitment can be viewed as a proxy for a larger argument about how to protect domestic economies from digital trade.
Thus, by Wednesday, trade watchers will also be able to see more clearly how the global trade system is preparing to address issues of the future economy. Talking Trade posts, of course, will continue to cover both the unfolding US-China talks and the evolution of the e-commerce and digital trade talks. Stay tuned.
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