China Failed to Meet Phase I Trade Deal; Why is Congress Pushing for More Imports?

China did not fulfill its commitment to buy some $200 billion worth of U.S. imports, reaching just under 60% of what they had agreed upon in the Phase One trade deal, a report by the Peterson Institute for International Economics said. 

China bought only 57% of the U.S. exports it had committed to purchase under the agreement, not enough to reach its import levels from 2017, the PIIE report stated.

China failing to meet its end of the bargain should come as no surprise to members of Congress. Legislators have been quiet on this shortfall thus far.

If political leaders are angered by China not importing the totals it agreed to, they need to channel some of that ire into protecting existing tariffs. Instead, we have dozens of legislators, like House Minority Leader Kevin McCarthy, that want to make the Section 301 tariffs weaker through an easier exclusion process. These are the bulk of tariffs on goods made in China.

On January 20, more than 120 staff members and Congressional leaders, sent a letter to Katherine Tai calling for more exclusions to those tariffs. Click here to read their signed letter.

Last week, CPA called for the full implementation of Section 301 tariffs, not more exclusions.

To date, some of the product lines set for tariffs have escaped duties – a gift to China and to companies who have had four years to look for sources elsewhere but have not done so.

In exchange for China’s commitments under the Phase One deal, the United States agreed to lower or suspend implementation of the final tranche of Section 301 tariffs in December 2019, known formally as Lists 4A and 4B. Those tariffs have been on hold. China is getting a pass, while companies continue to rely on China supply chains, often to the detriment of the U.S. economy.

Everyone knew in the fall that China would not meet its commitments to the Phase One deal.

In October, U.S. Trade Representative Katherine Tai already announced China was far short. Secretary of Commerce Gina Raimondo responded to this by saying the Biden administration “would hold China accountable” for failing to meet its commitments.

What might that look like?

“CPA strongly believes the Biden administration should immediately and fully impose all 301 tariffs to hold China accountable for, once again, violating an international agreement,” said Zach Mottl, Chairman of CPA. “For decades, China has engaged in massive state-subsidization of its industries, stolen Intellectual Property, used forced labor, shown little regard for environmental laws, and consistently violated international agreements. The goals of the Phase One deal required structural reforms and other changes to China’s economic and trade regime, however it is now clear that China has no interest in complying. Now that the Biden administration has confirmed China is violating the agreement, the 301 tariffs for products covered under Lists 4A and 4B should snap back to their original levels.” 

If the last two months are any guide, members of both parties are calling for the removal of China tariffs.

Last month, 8 Senators, led by Jacky Rosen (D-NV) and Jerry Moran (R-KS) sent a letter to Biden asking for the removal of solar tariffs. This is compared to the six, including Sherrod Brown (D-OH) and Marco Rubio (R-FL), who also sent a letter to Biden asking him to side with the International Trade Commission, which advised to keep tariffs for another four years. Biden chose to remove tariffs on bifacial solar panels, used by solar electric power stations.

What might be even more ridiculous on the China trade front is the recent import of China N95 masks for use by House Reps.

CPA sent a letter to House leadership in January on this issue.

Yes, China did not meet its trade commitments. Congress should be advocating for policies favorable to U.S. domestic business, instead of policies beneficial for the maintenance of China supply chains. Our dependence on China should be more concerning in Washington than China not reaching Phase One import totals.

“China missing the Phase One target is no surprise,” said Jeff Ferry, chief economist for CPA.  “More relevant is our continued, over-extended international supply chains, our over-dependence on China in many industries, including low-tech industries, high-tech industries, and industries crucial for national security, and the risk of new, unexpected shortages due to China’s latest lockdown policies. None of these trade deals is addressing the core problem: our huge dependence on China and the apparent unwillingness of Congress to make Buy American mean what it says,” he said.

American dependence on China is not lost on Beijing. It makes it easier for China to stall or walk away from trade commitments because they know most U.S. companies are hooked on them.

The minor upside of Phase One was that China returned to the U.S. agriculture market after abandoning it for Brazil and Argentina.

Any trade strategy with commodity-hungry China will need to shield agriculture and take farmers off the battlefield as a retaliatory target.  Foreign country retaliation against farming has been a weapon to bring Congress in farm states to see things China’s way on matters of trade.

CCP Believes China’s Market Trumps Concerns Over Trade, Other Issues