U.S.-China Trade War Could Heat Up

A congressionally mandated commission is calling on the Biden administration to assess whether China is engaging in predatory trade practices, a ruling that could eventually lead to the United States suspending permanent normal trade relations with China.

If adopted, the recommendation, made by the U.S.-China Economic and Security Review Commission in its annual report to Congress released on Tuesday, would upset the two-decade trade relationship and further roil an already-fraught dynamic between the two superpowers. By rolling back so-called permanent normal trade relations approved by Congress in 2000 amid China’s push to join the World Trade Organization (WTO), the United States could set the stage to further raise tariffs on Chinese imports. (The Trump administration put in place 25 percent tariffs on a range of Chinese products in 2019.)

The commission, which is nonpartisan, is essentially recommending more of the Trump-era economic confrontation with China, which many in Washington blame for the loss of U.S. manufacturing jobs and an erosion of U.S. economic competitiveness in recent decades.

“This is to empower the administration and to empower Congress with the leverage to rebalance the trade relationship that may have gotten out of whack or that is not serving U.S. interests,” said Alex Wong, the chairman of the commission and a former State Department official during the Trump administration. “Would it affect U.S.-China relations? Sure it would. But that’s the point. We are recommending that Congress and the administration look at this mechanism in order to evaluate and appropriately rebalance the trade relationship with China.”

The United States widely applies the WTO’s most-favored-nation trade rules, which call on member nations to extend the same terms to every other member. While there are some exceptions for free-trade agreements—such as within the European Union and the U.S.-Mexico-Canada agreement—the United States grants the status liberally to most nations, except for Cuba and North Korea. According to WTO rules, the United States can revoke China’s most-favored-nation status under national security exceptions, which the Biden administration used against Russia after the invasion of Ukraine in February. It would also be an acknowledgment that China hasn’t upheld its end of the bargain in the two-decade-old trade relationship. Specifically, the commission called out China for violating its WTO pledge by enacting industrial subsidies, stealing intellectual property, and putting in place protectionist policies that have harmed U.S. businesses.

A decision to revoke the preferential trade status would force Congress to reevaluate the trade relationship. So far, the Biden administration has largely kept in place a series of tariffs first put in place by former President Donald Trump, which led to billions of dollars in retaliatory tariffs from Beijing. A move to review China’s predatory trade practices could also goose a U.S. bureaucracy that has been slow to act on the issue; Foreign Policy reported in September that U.S. Trade Representative Katherine Tai is expected to wrap up a four-year review of imports from China next year.

But even if the Biden administration and Congress do not decide to implement the report’s 39 wide-ranging recommendations that cover everything from the creation of a White House office to hardening U.S. supply chains to the feasibility of an energy blockade of China, the report adds to Washington’s adoption of more hawkish stances on China on both sides of the political aisle.

Last month, U.S. national security advisor Jake Sullivan declared that the post-Cold War era was “definitively over” in a speech at Georgetown University unveiling the Biden administration’s national security strategy, which centered on China as the No. 1 challenge to U.S. power. And the commission, which was set up by an act of Congress after China’s accession to the WTO, has taken an increasingly tougher stance on Beijing’s trade practices, making the case for nearly two decades that China has ballooned the U.S. trade deficit by systematically undervaluing its currency and engaging in unfair trade practices.

On the other hand, China has also taken steps to move away from economic dependence on the United States. Chinese leader Xi Jinping, who was given a historic third term at the 20th National Congress of the Chinese Communist Party in September, has pushed a “dual circulation” strategy designed to decrease China’s dependence on U.S. and Western imports, especially of critical technologies. The Biden administration has sought to starve Russia of computer chips in response to the full-scale invasion of Ukraine, and recent U.S. legislation has threatened China’s high-tech sector, such as the CHIPS Act, which seeks to bring semiconductor production back to the United States. The report also calls on Congress to create a permanent U.S. government committee to examine sanctions or other possible economic measures to respond to Chinese military action over Taiwan.

With the WTO unable to crack down on China’s trade practices, in part because of the Trump administration’s willful neutering of that body, the commission is pushing policymakers in Washington to take a stand.

“If we go back to the 1999 vote, that was essentially an informed wager on the part of the United States that granting this status would make our trade relationship flourish but also lead to to general betterment of our relationship with China, bring China into the international system, and create greater stability,” Wong said. “And 20 years hence, it is a strong question of whether our wager panned out or if we’ve been hurt by that.”