In big week for trade policy, US-China talks should take the cake

This will be one busy week for trade in Washington. The U.S. Trade Representative’s office will submit its negotiating objectives for NAFTA, while the Commerce Department might announce options for “quotas and tariffs” on steel imports. The most consequential trade item this week, however, may be the first meeting of the U.S.-China Comprehensive Economic Dialogue on Wednesday, 100 days after it was formed at the Trump-Xi summit in Mar-a-Lago in April. 

This meeting will set the stage for U.S.-China engagement on trade and economic issues for the foreseeable future. It takes place at a time when U.S. exporters and investors are becoming increasingly vocal on the plethora of barriers to the Chinese market and feel no comfort as China focuses on building up sectors like information technology and robotics, its “strategic emerging industries.” If this week’s meetings are to address these issues, they will require patience, creativity and detailed discussions. 

{mosads}There are four key elements to consider when evaluating the success of this week’s economic meetings with China:

Implementation of May 11 commitments: One month after the dialogue was established, both sides announced a series of “initial actions” covering such sectors as agriculture, financial services and energy. We have already witnessed the reopening of the Chinese beef market and the U.S. poultry market. What will happen to the other sectors is less clear.

This week, it will be important to pay attention to how many U.S. biotechnology applications have actually been approved and to whether U.S. credit card companies have been granted licenses to operate in the Chinese market. Ensuring that commitments are followed through in practice is key to making this dialogue credible.

Overcapacity issues: A major outcome of the recent G-20 summit in Germany was an agreement to intensify and set deadlines for the work of the Global Forum on Excess Steel Capacity, which seeks a multilateral solution to the steel overcapacity problem.

The U.S. is also close to announcing the results of its Section 232 investigation on steel, which may result in the imposition of trade restrictions against imports from a number of countries, including China. A similar probe on aluminum, currently underway, would also impact China. With enormous excess capacity, China is a major source of global supply in these and other products.

This April alone, China produced more steel than the rest of the world combined. Given the urgency of this matter, how will the two governments handle overcapacity issues this week? Will they sidestep it or will they address it head on? It would be a welcome development, for example, if both countries pledged leadership and cooperation in the global steel forum discussions.

Next Set of Issues: Both sides are expected to announce the focus of work for the coming months and year. They will be tempted to select areas that lend themselves to quick fixes, but this is not what’s called for at this time. The U.S. has deep-seated, tough issues to address with China, including subsidization, cloud computing, data flows and localization, forced technology transfer, overcapacity, industrial policy and intellectual property protection and enforcement.

For this dialogue to be credible and meaningful, these systemic issues need to make their way to the top of the list, with a renewed commitment to tackling them at senior levels of both governments. The U.S. should underscore that it’s committed to getting these issues right, and it should schedule the next dialogue meetings strategically to spur progress.

Chinese Requests: The comprehensive dialogue is a two-way street. China will expect concessions as well. This was evident in the “initial actions” announcement, when the U.S. agreed to Chinese requests on poultry, financial services and liquefied natural gas. Having given a lot then, it’s not clear what else the U.S. has to offer.

Based on my experience, I suspect China is pressing hard for concessions on relaxing investment restrictions under the Committee on Foreign Investment in the U.S. (CFIUS) and scaling back the list of products on the U.S. export control list, which restricts exports of sensitive high-technology equipment. I would not expect progress on either. Will this insistence on tit-for-tat concessions continue, or will the Trump administration be able to break out of this dynamic in light of the overall imbalance in our trade relationship? 

NAFTA and steel may dominate this week’s headlines. The outcome of the China Economic Dialogue, however, should be given intense scrutiny. This week’s meeting may very well lay out the parameters of our economic engagement with America’s second-largest trading partner. 

Wendy Cutler is the vice president and managing director for the Washington, D.C. office of the Asia Society Policy Institute, which targets policy challenges confronting the Asia-Pacific in security, prosperity, sustainability and the development of common norms and values for the region.

The views expressed by contributors are their own and not the views of The Hill.