Wednesday, June 29, 2022

U.S. Trade Representative Katherine Tai Calls Tariffs a “Significant Piece of Leverage”

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Screengrab via the Senate Appropriations Committee

In testimony before a Senate Appropriations subcommittee, the U.S. Trade Representative says the United States must build a future that is more resilient. That starts with better trade policy.

U.S. Trade Representative (USTR) Katherine Tai spent Wednesday morning testifying before a Senate Appropriations subcommittee on her agency’s 2023 fiscal year funding request. While Tai was there to answer questions about USTR’s 2022 spending and explain the Biden administration’s request for $76.5 million for 2023, there was very little conversation on past or future spending.

Instead, the subcommittee focused primarily on tariffs and trade relations with China, particularly the “Section 301” tariffs currently lobbied against China.

“The China tariffs are, in my view, a significant piece of leverage,” Tai said. “And a trade negotiator never walks away from leverage.”

There have been misguided calls among some in Washington to revoke the tariffs to lower inflation. But even the most optimistic projections show it’s unlikely that doing so will actually help lower consumer prices, a point Tai made on Wednesday. “With respect to short-term challenges, there is a limit to what we can do with respect to, especially, inflation,” Tai said.

Tai pointed out “the existing tariffs are there to address China’s IP rights abuses and forced tech transfers,” and noted they were successful in bringing Chinese officials to the table, eventually leading to the “Phase 1” trade deal.

But China has not met its commitments in that agreement, Tai said, and further negotiations with China haven’t yielded results, “leading us to conclude that it is time to turn the page on the old playbook” and begin to realign U.S-China trade relations.

What’s important is that U.S. trade policy help the United States meet its long-term goals, including shoring up critical manufacturing for things like semiconductors. China’s economy remains state-controlled, and the Chinese Communist Party (CCP) continues to deploy practices like massive subsidies, state-owned enterprises, forced labor, and lax environmental laws to dominate global industries.

“We will one day find ourselves on the other side of these challenges,” Tai said of inflation. “And I think it is very, very important that what we do now not undermine the need that we have to make ourselves more competitive and to defend our economic interests in a global system that for the past several decades has eroded our leadership in many, many different areas in the economy.”

Tai faced tough questions from senators throughout the hearing, who grilled her on everything from the Section 301 tariff exclusion process to tariffs on fertilizers (American farmers are in a pinch for fertilizers) to Iceland’s new free trade agreement with China.

Tai stuck to what seemed to be her mission statement, creating a new trade playbook with “an eye to ensuring that we are building towards a future system that is more resilient, that does not throw us back into the crisis that we are encountering today.”

Tai shared the sentiment of building a more resilient system of trade throughout her testimony. Another key moment for building a system of resilience was in response to a question from Sen. Chris Coons (D-Del.) on whether U.S. market access should be negotiated for Indo-pacific Economic Framework.

Tai stated: “When we talk about market access in trade terms, in trade terminology, we are talking specifically about tariffs liberalization and that is not on the table.” She explained that, yes, tariff liberalization is not on the table.

The focus, she said, is on “ensuring and building partnerships and confidence in each other’s markets through our regulators, through these conversations, and looking at ensuring the quality of the access that we have granted to each other through existing rules on tariffs but also looking at new sets of rules that frankly go beyond goods traded.”

Tai’s focus is on building stronger strategic partnerships with existing allies to counterbalance China. The Indo-Pacific trade agreement is an example of one such new partnership, she said.

The current economic concern of supply chain disruptions also came up at the hearing, and Tai had no hesitation in agreeing with Sen. Jack Reed (D-R.I.) when he stated that “we built and took for granted a global supply chain built on efficiency and speed without sustainability” that has been broken by the pandemic.

Tai’s solution? A new form of globalization.

Tai argued that there needs to be a new “version of globalization that is built for, beyond efficiency: resilience, and sustainability.” This new, better globalization is, according to Tai, at the forefront of all ongoing and future negotiations, with an approach of creating supply chains that take into account risk, which she argues it is maybe more important than tariff liberalization.

Reliance of the supply chain equals resilience in the economy. And vice versa.

Sen. Joe Manchin (D-W.Va.) brought up China’s destruction of the American solar industry through its use of third-party countries to continue to dump products in the United States. (AAM has a great post about that saga here.) Tai agreed that more needs to be done to level the playing field for American industry, not only for solar panels but also industries like steel.

“Once we have lost the better part of our industry,” Tai said, “we find ourselves total over a barrel domestically.”

Watch Tai’s full testimony here.

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