The US is pushing for regular reviews of China’s progress on pledged trade reforms as a condition for a trade deal, and could again resort to tariffs if it deems Beijing has violated the agreement.
A continuing threat of tariffs hanging over commerce between the world’s 2 largest economies would mean a deal would not end the risk of investing in businesses or assets that have been impacted by the trade dispute.
The threat of tariffs is not going away, even if there is a deal.
Chinese negotiators were not keen on the idea of regular compliance checks, but the US proposal “did not derail negotiations.”
A Chinese source said the United States wants “periodic assessments” but it is not yet clear how often. The Trump Sword hangs high, but perhaps the 2 sides can find a way to save face for the Chinese government.
The Trump Administration has imposed import tariffs on Chinese goods to put pressure on Beijing to meet a long list of demands that will rewrite the terms of trade between the 2 countries.
The demands include changes to China’s policies on intellectual property protection, technology transfers, industrial subsidies and other trade barriers.
An enforcement and verification process is unusual for trade deals and is akin to the process around punitive economic sanctions such as those imposed on NKorea and Iran.
Disputes over trade are more typically dealt with through courts, the World Trade Organization (WTO) or through arbitration panels and other dispute settlement mechanisms built into trade agreements.
But, President Trump’s team has criticized the WTO for failing to hold China accountable for not executing on promised market reforms. The US has also criticized the WTO’s dispute settlement process and is seeking reforms at the organization.
Regular reviews would be one potential solution to address a demand from US Trade Representative Robert Lighthizer for ongoing verification of any trade pact between the 2 countries, three sources familiar with the talks told Reuters. The threat of tariffs would be used to keep reform on track, the sources said.
Mr. Lighthizer is leading negotiations with China.
This keen focus on regular reviews in current negotiations, now carrying the threat of tariffs underscores President Trump’s determination to hold China’s ‘feet to the fire’ on the resolution to the dispute sans any outside organization like the WTO.
If China can show compliance through a process like this, it would also be a trust-building measure for both sides.
The Trump Administration accused China of repeatedly failing to follow through on previous pledges to implement reforms sought by the United States.
The challenge of verification and enforcement stems from the fact that China has made promises it has not kept.
Presidents Trump and Xi agreed to a 90-day truce in the trade dispute in December to give their teams time to negotiate a deal.
China’s Vice Premier and lead negotiator Liu He is due to visit Washington for the next round of talks with Mr. Lighthizer and US Treasury Secretary Steven Mnuchin at the end of this month.