Compass Money: A Talk on Trade Talks – U.S.-China Trade Relations After the January 2021 Inauguration

James Green (left) and Wendy Cutler (right) discuss the future of U.S.-China trade relations after the January 2021 inauguration. (Screenshot)

In its ongoing series titled “U.S.-China Dialogue 2020,” the Georgetown Initiative for U.S.-China Dialogue on Global Issues held a webinar on October 27 regarding the two countries’ trade relations after the January 2021 inauguration. The event was hosted by Senior Research Fellow James Green and featured Wendy Cutler, who had previously been an acting Deputy U.S. Trade Representative and is currently the Vice President and Managing Director of the Asia Society Policy Institute.

Having been a trade representative in past American trade initiatives in the Asia-Pacific, Cutler has considerable experience negotiating in high-profile cases that capture international attention, including the Trans-Pacific Partnership (TPP) agreement. When asked about how negotiating with China was different from past negotiations with other countries, Cutler explained that the process was a “black box” for her. 

Unlike other Japanese and Korean negotiators who were open in dialogue and had shared objectives, Chinese diplomats had little latitude in their top-down system. According to Cutler, they repeated the instructions they received and were not entrepreneurial with other possible resolutions. As such, Cutler found it much harder to build trust and momentum with Chinese negotiators.

Although the two countries’ trade is a bit more stable than other aspects of the relationship, Cutler admitted that the U.S. still has a “very fragile” truce with China in this area. She explained that the U.S. already has a Phase One agreement in place, which locks in hundreds of billions of dollars of tariffs on both sides and focuses on agricultural purchases. However, key issues like subsidies, state enterprises, and cybersecurity have all been delayed to Phase Two. 

For Cutler, these latter issues need to be resolved if America wants to have a “level playing field with China.” Yet the current level of distrust between the two countries leaves slim hope for a Phase Two agreement if President Trump is reelected.

Other domestic and international issues also exacerbate tensions. Because the U.S. market is not at the level it used to be a few years ago, the European Union (EU) has built the confidence to work without the U.S. and has been negotiating with other countries, including many Asian countries. Rather than the U.S., Cutler believes that China is now the place where countries go to look for opportunities. 

In Cutler’s eyes, even the World Trade Organization (WTO) is in crisis. With its inability to modernize its rules and address the U.S.-China trade tensions, the WTO is becoming less relevant on the global stage as countries look elsewhere to settle their disputes and negotiate rules. The current pandemic also forces many countries to question the importance of globalization. These problems all contribute to the difficulty in reaching lasting agreements between the U.S. and China.

Domestically, Cutler sees a much more active role for Congress and trade going forward. With the next Congress beginning this January, Representatives are likely to push for more trade and open markets in order to ensure that the U.S. is not missing out on trade agreements. 

According to Cutler, political parties have also seemed to be more united on this front. In this Congress alone, over 350 bills about China have been introduced by both Democrats and Republicans. There is bipartisan concern that the Trump administration has not followed the trade rules it made with Congress, using trade laws for unintended purposes.

After the January 2021 inauguration, Cutler predicts two different approaches taken by President Trump and Democratic candidate Joe Biden. A second term for the Trump administration would yield a further decoupling of the two countries’ economies and a push for more reshoring—not just for American companies in key industries to leave China and go to other parts of Asia, but to also come back to the U.S. As there are few warm feelings between the Trump administration and China, Cutler sees only a slight possibility of a Phase Two deal after the election and is not sure of the bandwidth or desire to negotiate on either side.

For the possible Biden administration, Cutler sees more of a deliberate and communicative strategy with China. The administration would take actions on trade, technology, and consulate issues—all in an integrated way with more deliberate interagency processes. Although tensions would still exist, Biden would make a more concerted effort to present a “united, collective front” to China by working more closely with allies. 

In the face of myriad uncertainties regarding the future of U.S-China trade deals, one thing remains clear for Cutler: “We need to get ready for a world of a lot of tensions between the United States and China.”