Happy (almost) Friday – well it seems always exciting! Debt ceiling standoff (a real one still), reconciliation and infrastructure fight, inflation and supply chain risks, Fed appointment challenges, energy crises, and in the background some headlines on China policy.
We have fielded some questions (as if we would know but thank you!) about Washington’s China strategy in reaction to some email chains circulating around in markets that the Center for Strategic and International Studies (CSIS) is hosting a conversation with US Trade Representative Katherine Tai on US China trade relations.
First of all, kudos to our CSIS friends for putting it together — I have even signed up for it, or think I have, if possible. As to the questions, my opinion is that I doubt Ambassador Tai would use the CSIS forum to break ground on any high-level decision or shift on the existing tariff or trade regime in place, which I think would come in a formal announcement from the appropriate political levels depending on the intended magnitude of the announcement. But I do not pretend to be privy to what Ambassador Tai will say and am interested to hear.
But here is out take on the overall US-China trade/economic situation:
The administration will talk and stand tough on some important issues that the US needs/wants to address, unfair trade practices, transparency, subsidies, Taiwan, human rights, Uighurs, Hong Kong, all with less and less effect, but we believe the goal is to improve and de-escalate in general on economic issues. Why? Growth, economy, markets, consumers, increasing inflation and commodity, supply chain concerns, good old-fashioned profits and lobbying, they don’t like “Trump-era” tariffs really, would like to make the case that they have not been effective, can conduct a multi-faceted (as opposed to the old one track) policy designed to help the economy and working people, manufacturing, but tough on security issues. We have been writing this for a while, more or less, been quite a bit out there on it I have felt.
Often people get more rattled (albeit increasingly less so) by hawkish rhetoric, always they rightly cite the domestic US political difficulties to any easing with China, but which can be overcome with the right concession/cover, so we talk and speculate about how the trade plays out politically. Phase One will be declared dead at some point, I don’t know when, but we have thought there would be movement on trade before year end, which is not so far away now.
Massive, massive corporate lobbying (Chamber of Commerce, US China Business Council, etc.) and financial industry lobbying one might reasonably presume may come into play as well — how do I phrase this delicately! And there has been lots of communication/dialogue between American and Chinese notables, not just private sector participant/sponsored, but with officials as well.
A few days ago, Dave Lipton rattled the cages on how the administration’s job wasn’t to protect Wall Street (while they all feted!) and note, important, in a “re-established forum in place since 2018.” Some gradual re-establishment of dialogue is something we have been flagging as a goal — from the highest levels on both side — as well and it has been happening on multiple levels (Commerce Departments, for example).
Jake Sullivan for his part (National Security) maintains an important strategic tough line on China, but after a while one has to also consider actual changing military trends in the region on the ground. And no one is going to trigger a flare up, one presumes.
Just some thoughts. We shall see. Have a great weekend!