Via Teleconference
4:06 P.M. EDT
MODERATOR: Thanks, everyone, for joining us today to talk about how the Biden administration will approach the bilateral trade relationship with China. This call is on background, attributable to “senior administration officials.” And the contents will be embargoed until tomorrow, Monday, October 4th, 5:00 a.m. Eastern.
For your awareness, but not for reporting, joining us today are [senior administration officials]. We’re going to have some brief remarks at the top, and then we’re going to take a few questions.
With that, I will turn it over to [senior administration official] to get us started.
SENIOR ADMINISTRATION OFFICIAL: Well, thanks, everybody, for joining us on this Sunday afternoon. Hopefully we’re not pulling folks away from too many of their important football games. So, depending on when we wrap here, I may or may not make it for kickoff for my Steeler game. But putting that to the side, I just — I want to start off by talking broadly about our — you know, the administration’s approach to China.
You know, President Biden has been clear that while we welcome competition, including in the economic domain, his focus is on protecting American workers, growing our economy, and creating opportunities for our people at home. This competition should have some clear guardrails, in our view, and it needs to be fair.
You know, since the beginning of the administration, we’ve made clear our strategy of competing with China from a position of strength. That’s why we’ve been investing in our domestic renewal, getting the pandemic under control, investing in our supply chain resiliency and our technological edge so we can continue to lead the world in industries of the future. And it’s why we’ve been working with our allies and partners to align our approaches to China’s unfair, non-market practices.
And as my colleague, [senior administration official], will talk about in a minute, we’ve used those intensive consultations to shape our approach to China to ensure that the terms of the competition are fair, and set the rules of the road for trade and technology in the 21st century.
President Biden has also stressed the importance of the U.S. and China communicating with each other to ensure healthy competition that will advance American interests and priorities. This applies to our bilateral trade relationship with China, as well as other aspects of our relationship with China. We’re two large economies that impact not just the wellbeing of our people, but people all over the world.
As President Biden has said, you know, we believe that there is no better alternative than the long, hard work of direct diplomacy. At the same time, we recognize that Beijing is increasingly explicit that it is doubling down on its authoritarian, state-centric approach and is resistant to addressing our structural concerns.
Therefore, our primary focus will be on building resilience and competitiveness — including with our allies and partners — on diversifying markets, and limiting the impact of Beijing’s harmful practices.
So, you know, I think consistent with how we’re approaching other aspects of the relationship, we’ll approach the trade relationship frankly, directly, and with the full clarity to express the concerns on the minds of the American people and our allies and partners all over the world.
I would just sort of wrap my piece here by noting that President Biden’s North Star is really a simple question: What is best for American workers and interests?
We will move forward on his vision by keeping what is working for American families about our trade and economic relationship with China and changing what is not.
Our objection to the previous administration’s approach was that it really did not build on our strengths, whether that was at home or with our partners and allies. You know, our objections were that they were doing — you know, that their approach was done in a way that was at times chaotic, including hurting select sectors of the American economy, and it really wasn’t targeted to address strategic problems that we have.
And so, as we have conducted an interagency review over the last few months of our approach to trade with China, our overriding priority has been developing an approach focused on standing up for our principles, for our people, and for our friends.
So, with that, let me hand it over to [senior administration official].
SENIOR ADMINISTRATION OFFICIAL: Thanks, [senior administration official]. And thanks to everyone joining us both from the administration today and to all of you dialing in to hear from us on a Sunday afternoon.
When President Biden got into office, he made clear that the phase one agreement did not resolve our core concerns with China, which are structural and characterized by a state-directed approach to the economy and trade that distorts competition by propping up state-owned enterprises, limiting market access, and other coercive and predatory practices in trade and technology. The harms for American workers and American firms from these practices has been well documented.
President Biden believes that while phase one did not meaningfully address our fundamental concerns with China’s trade practices, it’s important that China live up to the commitments and promises it’s made. These include promises that China made in the phase one deal that benefit workers, farmers, and manufacturers across America.
For example, there is real-world evidence that some businesses covered by the phase one trade deal have done better. So, for American industries like agriculture that have benefited from phase one, President Biden is going to continue doing things that work, which in turn creates more predictability for American industry and allows them to plan and grow.
But unlike his predecessor, President Biden is going to hold China to account where China is falling short of its commitments. Biden also believes that we have to use all our tools to make sure China’s economic and trade policies do not hurt American workers and businesses.
When the President got into office, he said he was not going to make any immediate moves and prejudice his options before we completed a full review of the existing phase one agreement. He was going to fight to invest at home and consult closely with our allies and partners in Asia and Europe to develop a coherent strategy.
He also recognized that there is much more to the U.S.-China economic relationship than tariffs and trade, and that we needed to consider all aspects of the economic relationship as we implement an effective strategy. And that’s exactly what we’ve been doing for the past several months.
With Congress’s support, we’ve begun to make smart investments in research, science, technology, infrastructure, and to create the proper incentives to shore up our technological leadership, to secure our supply chains, and increase the overall competitiveness of American companies and American workers.
We’ve already accomplished some of that work of the American Rescue Plan. The administration has been driving a comprehensive effort to secure America’s supply chains, and we’ve been making investments to secure our technological leadership. And we’re now working closely with Congress to build on these actions: Bipartisan Infrastructure Bill; the Build Back Better agenda, which will also harness the talent of our people by investing in education and worker training; and our support for the U.S. Innovation and Competitiveness [Competition] Act, as well as other important legislation.
When it comes to actions we’ve taken beyond trade, in May, President Biden signed EO 14032, putting a secure and enduring basis for restrictions on U.S. investment in certain companies that are linked to the Chinese military or to China’s surveillance technology sector.
We’ve taken action to impose restrictions on individuals and companies involved in human rights abuses in China’s Xinjiang region. The Securities and Exchange Commission, which is obviously an independent agency, has recently announced a set of steps that it is taking to limit the risks U.S. investors face due to China’s refusal to allow companies listed in the U.S. to share audit data with U.S. regulators. And in light of the often-opaque structures that Chinese companies use to list their securities in the U.S., we’ve been robustly screening Chinese direct investments in the U.S. via the CFIUS process.
But trade is an important part of the overall economic relationship. And as my colleague, [senior administration official], noted earlier, the U.S. is not the only country being harmed by China’s unfair trade practices.
President Biden is putting an end to the previous administration’s approach that alienated allies and weakened the global market for American workers. Instead, under President Biden, the U.S., working closely with major democracies, will set rules of the road for trade and tech.
We’ve been coordinating with allies and partners, and this work with our allies and partners is already bearing fruit, as I evidence — as evidenced by efforts at the G7; the U.S.-EU summit back in June; the Quad — both virtually earlier this year and in person a week or so ago; and the tra- — the U.S.-EU Trade and Technology Council, which I want to talk about for just a minute since it took place just last week as — and is an example of what we can do with partners and allies.
The U.S. and the EU developed and announced a common set of strategies to mitigate the impact of non-market practices at home and in third countries, and to use our tools to protect workers and labor rights, combat forced and child labor, and consult on relevant trade, climate, and environmental issues.
We also agreed to take collective action to secure our supply chains with respect to semiconductors — a key technology where we both face competition from China. And we announced joint principles for investment screening and for export controls.
With that, let me turn it over to USTR’s [senior administration official] to talk about the initial steps we’re taking to align the U.S.-China trade relationship with our interests.
[Senior administration official], over to you.
SENIOR ADMINISTRATION OFFICIAL: Thanks, [senior administration official], and thanks to everyone for joining the call.
As [senior administration official] and [senior administration official] have said, the Biden-Harris administration has been conducting a comprehensive review of the U.S.-China trade relationship.
As part of that, USTR has met with a range of stakeholders — including workers, farmers, labor representatives, members of Congress, the business community, and many others — to ensure we have heard from a broad spectrum of perspectives and views.
I want to make a couple of points very clear as we turn to our next steps in our trade relationship with China.
First, our objective is not to escalate trade tensions with China or double down on the previous administration’s flawed strategy.
Second, at the same time, where China continues to pursue its unfair and coercive practices, we will use the full range of our tools to help ensure that the U.S.-China trade relationship works for American workers, our industries, and our supply chain.
And third, while we would welcome China changing the practices that do harm to American firms and workers, we recognize that China simply may not change and that we have to have a strategy that deals with China as it is, rather than as we might wish it to be.
From the outset, we wanted to stabilize this relationship by taking the time to thoroughly conduct this review. As Ambassador Tai has said, this is the most consequential bilateral trade relationship in the world, and it involves the two largest economies. The decision to be more deliberative and to bring long-term thinking into our approach was critical and a sharp departure from the last administration.
Here’s what’s clear: The current state of this trade relationship does not meet the needs of American workers, businesses, farmers, and producers.
In her speech tomorrow, Ambassador Tai will highlight some examples of how China’s unfair trade practices have hurt our workers and our industries and have given Beijing an unfair advantage in the global trading system.
She will also talk about the history of U.S.-China trade relations throughout the 21st century, from China’s ascension to the WTO in 2001 to the phase one agreement. This is important context to understand how we’ve reached this point.
She will point to China’s failure to reform its non-market policies or follow through on the commitments it made during high-level dialogues with U.S. officials over the last 15 years.
She will acknowledge that we need a new strategy — one that aligns with the priorities of our workers and businesses. It begins with making the domestic investments [senior administration official] highlighted to increase America’s competitiveness and that those investments must continue. This is what China and most other countries are doing now, and we cannot fall behind.
At USTR, we are taking some specific actions to begin to realign our trade policies towards China:
First, we will revisit the phase one agreement and emphasize that China must follow through on the commitments it has made.
Second, we will start a targeted tariff-exclusion process. We will also keep open the potential for additional exclusion processes in the future.
Third, in the coming days, Ambassador Tai will resume direct engagement with her counterpart in China. This will include discussions with China regarding its commitments under phase one, but it will also be a chance for Ambassador Tai to reiterate that the United States will defend itself, using all available tools, from state-directed industrial policies that harm our workers, producers, and overall economic interests.
And finally, we will work with our allies and like-minded partners towards building an international trading system that is fair and allows for healthy competition. Some of that work is underway already. The Boeing-Airbus deal, struck in June of this year, is just one example of how this commitment to work with our allies creates more opportunities for American producers. Ambassador Tai will share how we are building global coalitions to accomplish our shared priorities.
The last point I want to make is that we have always viewed our approach towards our trade relationship with China as needing to be flexible and agile. As Ambassador Tai often says, when it comes to trade, it takes two to tango.
We will see how China responds to what Ambassador Tai will detail tomorrow, and we will adjust accordingly. But we do not want to take any options off the table or preemptively box ourselves into a set course of action.
We’re prepared to act to protect American workers, farmers, producers, and businesses from unfair trade policies.
With that, I’ll turn it back over to [senior administration official].
MODERATOR: Thanks, [senior administration official]. Operator, could you queue up the directions for questions, please?
Q Hi, thank you so much for doing this. I have two questions, one in regard to the phase one agreement. You all said that you want to make it clear that China must follow through. So, to be clear, you all are intending to allow phase one to continue, or will you revive phase one? And what would be any consequences that you envision if China does not fulfill its end of the deal? As you all know, it’s currently falling short in some sectors.
And then, relatedly, you mentioned beginning the tariff exclusion process. Does that mean that the tariffs, as they stand, are remaining in effect?
SENIOR ADMINISTRATION OFFICIAL: I’ll jump in here. I think the first step on phase one is to engage China on its commitments under phase one and to discuss with them areas where we believe they may have fallen short.
It’s hard to predetermine what that exchange will look like. I’ll just say, as a way of answering the second part of that question, that all tools will be on the table to us as we look to enforce that agreement and maximize the benefits that were — that China committed to for our workers, businesses, farmers.
On the second point on the exclusions process, we will be restarting an exclusions process. And, yes — I mean, by extension of that, the tariffs will — we would expect the tariffs that we are announcing an exclusion process for will remain in place during that process.
But, really, the broader point here is that we’re going to be reengaging China under the phase one agreement, and we’re going to be realigning our trade enforcement actions in place for those that — with those — with the priorities of the Biden-Harris administration.
I don’t know if [senior administration official] or [senior administration official] have anything else to add.
SENIOR ADMINISTRATION OFFICIAL: No, nothing here.
MODERATOR: Yeah. All good. Go ahead.
Q Hi. Yeah, thank you for doing this call. I just want to be clear: So Ambassador Tai intends to declare that China has — is not in compliance with the phase one trade agreement and you will be using the enforcement mechanisms associated with that deal to request consultations with the Chinese officials to rectify the situation?
And also, you said that you don’t want to double down on the failed policies of the previous administration. Obviously, they imposed the tariffs in the first place. Does that mean you’re not seeking to apply new tariffs? Is that off the table? Or is that — additional tariffs, you know, to — you know, persuade them to comply with this agreement — are those on the table? Thank you.
SENIOR ADMINISTRATION OFFICIAL: So, for the first question, I think the best way to characterize what Ambassador Tai will say tomorrow is that she intends to have frank conversations with her counterpart in China about China’s performance under the phase one agreement.
We are not going to predetermine what the outcomes of those conversations are, but based on what we’ve — the data that we’ve seen, there are some commitments that have not been met, and we think the results overall of the agreement are mixed. We will be having conversations with — the Ambassador will be having conversations with her Chinese counterpart to discuss those things.
And then, I guess to your second question, we are not taking any tools off the table. We are going to make sure that the trade enforcement actions that we take align with the Biden-Harris priorities and that any trade — the exclusions process, like I mentioned, we also want to make sure we use that to align existing tariffs to those same priorities.
But again, we don’t want to take any options off the table, but the first step for us will be engaging with China on these issues.
Q Thank you. I’m just curious — I mean, in previous calls, when you’ve discussed engagements and meetings between senior officials in the administration with their Chinese counterparts, you’ve been clear that it hasn’t really worked, which is why you wanted President Biden to speak to Xi Jinping. Why do you think it will be any different when it comes to negotiations with the trade officials in China?
SENIOR ADMINISTRATION OFFICIAL: I will start here, but then [senior administration official] and [senior administration official] can chime in.
I mean, we know that China views the phase one agreement favorably, and so we want to engage with them under that agreement. There is an enforcement mechanism under the agreement as well, and that was a structure that they agreed to.
And — but, you know, we are willing — and again, I’ll turn it back to [senior administration official] and [senior administration official] — but we are willing to take steps, should that engagement not get the results that we want, to ensure that we’re doing what we need to do that’s in our economic interest.
[Senior administration official] and [senior administration official].
SENIOR ADMINISTRATION OFFICIAL: Yeah, I’ll jump in here. Hey, Demetri.
So I would just say a couple of things. I mean, number one is: As [senior administration official] noted rightly, I mean, we have this agreement, and we think it is really important for us to hold China to those commitments and to enforce the deal that is in place. And so, you know, this is the mechanism that is laid out under that agreement to do so, and that is the mechanism that we will be pursuing.
And so, I think that that is, you know, of course, just a very — a very specific and unique piece on the trade front where, again, we’ve inherited this specific deal. And, of course, you know, we do know that deal has produced results for some sectors of the American economy. We also know it’s been less helpful for other sectors of the American economy.
And so, again, we do think it is important, as [senior administration official] said, even as we will hold in reserve other options if this does not produce the results that we need. This is the first step for us.
But then, zooming out a little bit more broadly, you know, I think that our view has been that we’ve had many engagements on sort of other pieces of the relationship. The trade and — the trade relationship piece is one where, while we were conducting this review, we haven’t had as much engagement, and I think we will see what this produces.
I think, as [senior administration official] alluded to, there have been — you know, in the past, we have seen the ability to have a different kind of — more fruitful or at least meaningful engagements through those channels, but we will see if that remains to be the case.
But the last thing that I would just say, Demetri, is: You know, the presidents did have a conversation on September 9th, about the need to have more meaningful, substantive conversations than we have had previously, including both at the leader level, as well as through officials that they empower.
And I think you should view Ambassador Tai’s engagement with her counterpart, Liu He, in the context of officials that President Biden believes are carrying out important, sort of, practical, focused conversations in a way that has, again, hopefully empowered the leaders.
Q Yeah, thanks. So, on the reengagement strategy, I assume you don’t have a date set yet for Ambassador Tai’s meeting with her counterpart. Is that something you’re going to be seeking to arrange this month or in the next 60 days? What sort of timeframe do you have in mind?
And second, is it still your belief that it makes sense for there to be a phase two negotiation that would address all the structural issues that you’re complaining about that have not yet been tackled? Thanks.
SENIOR ADMINISTRATION OFFICIAL: I’ll chime in here.
We expect Ambassador Tai’s call with her counterpart to occur soon, but that’s all I’ll say on the timing of that.
Secondly, I think our engagement with China will focus on the phase one agreement. As we’ve outlined, we will use that engagement to raise concerns about the industrial policies and the harm they’ve caused American workers and businesses.
I don’t — I think it’s too early to say that — you know, how extensive the engagement on industrial policy will be. We know that China is unlikely to make meaningful reforms right now. And I think — as we’ve said, you know, we — if China were to change, we would welcome that, but we do not expect them to.
And so, I think for us, we’ll focus on phase one engagement, we will raise concerns on industrial policies, but we are not look- — seeking a phase two negotiation, and — or — and we will be taking steps to address harms of industrial policies as we see fit, depending on how that engagement goes.
Q Thanks, guys. I have two questions for you, [senior administration official]. Parts of the agreement, namely the purchases that you say they aren’t living up to, expire at the end of the year. Do you want to see movement by China by a certain date? Or what is your timeline here to get results, given the potential that China might just drag this out once you start engaging and given how far along we are in the year?
And then, on the exclusion process, you mentioned that you want to finetune the tariffs and the exclusions to benefit American workers. Can you give any more detail on the requirements, the parameters for companies that are applying for product exclusions and, you know, how you measure that it is actually in line with your values here in benefiting American workers? And when do we see this exclusion process be reinstated? Thanks.
SENIOR ADMINISTRATION OFFICIAL: So, on your first one, I mean, we’re not going to put a specific timeline on it. It’ll be up to China to take the steps that they need to take to get into compliance. I’m just not — you know, because — as Ambassador Tai says frequently, as I’ve already mentioned, it takes two to tango. It’s — I don’t know that I can put a timeframe on getting results on that. That’s why it’s really important for us to also convey the message that all tools are on the table for us, all options are available for us to consider what we need to do to defend our interests.
The second point on exclusions process: I think what I was saying was, you know, the overall trade enforcement actions that are in place should be realigned to the Biden-Harris administration’s priorities. We will use the exclusion process in part to achieve some of those goals.
I don’t have — [senior administration official] talked a lot about the domestic priorities for the Biden-Harris administration. So we will be looking to make sure that our trade policies are reinforcing our domestic policies. But specifics as to what companies should be looking out for and whatnot, I don’t — I don’t have for you at this time.
SENIOR ADMINISTRATION OFFICIAL: I just want to pick up with a, kind of, comment building on what [senior administration official] was saying about this being part of our broader agenda.
You know, I mean, I think that we’re going to be moving out in the coming days and weeks — Katherine Tai is going to be moving out in the coming days and weeks on the phase one. But obviously, you know, this is only a piece of what we’re doing.
I had talked some — you know, some of the actions we’ve taken on the investment front earlier, some of the actions we’ve taken on issues around Xinjiang earlier. We obviously also had an action — thinking of Xinjiang — where we had a Withhold Release Order to make sure we weren’t importing the products of forced labor, particularly in the solar sector.
And I think you’re going to continue to see the administration move out on all parts of our, sort of, economic agenda towards China; the focus, obviously, in the near term is going to be on the trade front.
But, you know, it really is just a piece of a broader economic agenda, which also very much includes, as [senior administration official] said, the domestic — the domestic agenda — making sure we are competitive here at home; we’ve taken steps to rebuild critical supply chains here at home and with our allies. And so, you know, just want to make sure we keep it in that context as we close.
MODERATOR: Thanks. Thanks, everyone, for joining. If we did not get to your question, please reach out to myself and my colleague from USTR. We want to make sure that we’re responsive to you before the embargo lifts tomorrow.
As a reminder, this call was on background, attributable to “senior administration officials.” And the contents will be embargoed until tomorrow, Monday, October 4th, 5:00 a.m. Eastern.
Thanks for joining, and have a good rest of your Sunday.
4:34 P.M. EDT
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