Squawk on the Street
The outlook for U.S.-China trade relations is likely to remain challenged after this week’s high-level diplomatic talks showed that President Joe Biden’s team does not plan to wholly abandon the Trump administration’s tough tone in discussions with Beijing.
Though Washington and Beijing struck a ceasefire in their tit-for-tat trade feud with last year’s “phase one” agreement , representatives on both sides are far from pleased with the status quo and see the other as a key economic rival.
That competition was on full display on Thursday , when the countries began two days of meetings in Anchorage, Alaska.
Secretary of State Antony Blinken began his remarks by noting that the U.S. would highlight “its deep concerns with actions by China, including in Xinjiang, Hong Kong, Taiwan, cyber attacks on the United States [and] economic coercion toward our allies.”
Yang Jiechi, director of the Central Foreign Affairs Commission of the Chinese Communist Party, said the U.S. “does not have the qualification to say that it wants to speak to China from a position of strength.”
Though the talks were seen more as a diplomatic exercise than an economic one, the prickly exchange is likely an early snapshot of the bitter battles ahead for the Biden trade team. And at stake is one of the most valuable trading relationships in the world.
China is currently the United States’ third-largest goods trading partner with $558.1 billion in total (two-way) trade in 2019, according to the Office of the USTR . That massive trading volume supported an estimated 911,000 U.S. jobs as of 2015, with 601,000 stemming from goods exports and 309,000 from services exports.
China is also the third-largest export market for American farmers and annual trade in agricultural commodities totaled $14 billion two years ago. China is the United States’ largest supplier of goods imports.
Clete Willems, a former World Trade Organization litigator at the Office of the USTR, told CNBC on Friday that he wasn’t surprised at the lack of progress in Anchorage.
Willems, who was once a member of Trump’s trade team and is now a current partner at law firm Akin Gump, said that the Anchorage meetings were more a chance to officially air complaints and less a realistic attempt at economic remedy.
“I had low expectations for Alaska and those expectations have been met,” Willems, tongue in cheek, said of the talks.
“I think [the Chinese government] misread the situation with the Biden team, and they thought these guys would come in and roll back all the Trump measures,” he added. “I think they’re finding out that that isn’t going to be the case. But I think they need to hear it directly from Blinken.”
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The trade negotiations with China carry commercial importance, but also represent an opportunity to protect U.S. national security interests and shore up access to critical technologies.
Weeks before the meetings in Anchorage, Alaska, the Biden administration drafted an executive order directing government departments to review key supply chains, including those for semiconductors, high-capacity batteries, medical supplies and rare earth metals.
“The Biden Administration has signaled that trade at all cost is not their position and that they will not curtail their views and pushback on human rights or national security (for example) in order to have a ‘good’ trade relationship,” Dewardric McNeal, an Obama-era policy analyst at the Defense Department, said in an email on Friday.
Though Biden’s order did not mention China by name, it directed agencies to review gaps in domestic manufacturing and supply chains that are dominated by or run through “nations that are or are likely to become unfriendly or unstable.”
The directive was widely viewed to include China, one of the globe’s largest exporters of rare earths metals, a group of materials used in the production of computer screens, state-of-the-art weapons and electric vehicles.
Still, Chinese negotiators, including Foreign Minister Wang Yi, may have been hoping for a warmer reception from Blinken after a tumultuous four years under President Donald Trump and his top diplomat, Mike Pompeo.
The Trump administration made a habit of imposing punitive tariffs and sanctions to address persistent complaints about China’s lack of intellectual property protection, required technology transfers and other unfair business practices.
“The Biden team understand the complex interlinkages of trade and commerce between the two countries and are hoping to be more targeted and predictable in their identification and management of issues and concerns (more surgical and less totally destructive) in competition and in cooperation,” McNeal, a senior policy analyst at Longview Global, added on Friday.
As of Friday afternoon, the U.S. team in Alaska had made no moves to ease limits on American sales to Chinese firms, including telecommunications giant Huawei, relax visa restrictions on Communist Party members or reopen the Chinese consulate in Houston.
Negotiations with Beijing will likely prove a top priority for newly confirmed U.S. Trade Representative Katherine Tai.
The Senate’s unanimous vote to confirm her nomination , a first for the Biden administration, reflects bipartisan faith in her skill as a savvy and practiced trade lawyer.
“Katherine Tai is just the kind of qualified and mainstream person who is positioned to serve President Biden and the country quite well,” Senate Minority Leader Mitch McConnell said on the Senate floor before the confirmation vote earlier in March.
Tai will soon face a litany of trade disputes instigated by the Trump administration but is expected to make discussions with Beijing a top priority .
She and her team are expected to review Trump’s lingering policies, including duties on Chinese steel, aluminum and consumer goods, as well as components of the phase one deal.
“She knows how to be tough on China and she knows how to do it in coordination with others,” said Willems, who previously represented the U.S. at the WTO with Tai. He added that it will be important for Tai to be sure to serve as a voice for U.S. trade interests in an administration with a deep diplomatic bench.
“You’ve got an administration with a very strong secretary of state, very strong national security advisors, who are very close to President Biden and who are occupying a lot of oxygen on U.S. policy in general. And she’s going to have to punch through that.”
— CNBC’s Nate Rattner and Yen Nee Lee contributed reporting.