President, China Center; Vice President, Greater China, U.S. Chamber of Commerce
May 01, 2017
While Saturday marked the first 100 days of the Trump administration, another important 100-day mark is on the horizon. Earlier this month, President Trump met Chinese President Xi Jinping for the first time. At their meeting, the two leaders agreed to a 100-day plan to achieve results to improve the bilateral economic and commercial relationship, including reducing the trade deficit.
The 100-day plan sets the stage for the future of relations between the world’s two largest economies. The bilateral relationship is enormously consequential for the U.S., China, and the world. For the United States, trade with China supports millions of U.S. jobs, and China’s growing consumer market is critically important to U.S. exporters and investors. For China, the United States is its largest goods export market. And for the world, the U.S. and China constitute 40 percent of global GDP.
Despite the opportunities, challenges are continuing to restrict the full potential of the bilateral relationship, and they are increasingly eroding its foundation. China’s economy remains too closed to American exporters and investors, a fact at least rhetorically recognized by China’s leaders who have stressed the importance of further market-based economic reforms and opening to the future of the Chinese economy. Chinese subsidies for a range of domestic industries—solar, steel, aluminum, wind turbines, and others—have substantially reduced the volume of U.S. exports and artificially depressed global prices, thereby harming U.S. manufacturing.
Further, while the U.S. trade deficit with China is in eye-popping statistic, it does not capture all aspects of the inequities in the commercial relationship. Much of the challenge in the commercial relationship involves market access for U.S. firms in China, the vast majority of which do not re-export from China to the United States. While issues of Chinese discrimination against U.S. exports are an important issue to address between the two countries, there are other issues of profound economic consequence that are not neatly captured in bilateral trade statistics. These include China’s use of regulatory levers to restrict the growth potential of U.S. service providers, an area where U.S. companies are among the most competitive globally. According to the OECD, China has the most restrictive investment environment of all G20 countries.
Concrete actions by China to reduce distortions in its domestic economy that restrict U.S. exports as well as open its market wider to American investors would create new jobs and support economic growth in the United States. Importantly, such actions would be consistent with goals China’s leaders have repeatedly stated and with the advice of Chinese and foreign economists regarding the steps China needs to take to ensure sustained economic growth and avoid the “middle income trap”.
So what steps can be taken before July 16 that would promote these goals and foster a more enduring and mutually beneficial relationship?
The U.S. Chamber recommends that the two governments focus on achieving outcomes in at least five areas as follows:
1. Suspend implementation of the pending Cybersecurity Law and address U.S. concerns regarding ICT policies.
A 100-day plan that does not deliver significant progress in curbing discriminatory regulations in China’s ICT sector—including a suspension of the pending Cybersecurity Law—cannot be considered a success. A raft of new Chinese laws and regulations are restricting U.S. technology companies from exporting and selling their products and services in China and are placing companies’ most sensitive technology at risk. In the area of cloud services, for example, China is requiring foreign companies to transfer their technology and to surrender their brand and operating control in order to do business—even as Chinese companies are expanding into the U.S. and other markets with no such restrictions. The 100-day outcomes should include a suspension of the Cybersecurity Law (scheduled to be implemented on June 1) as well as a commitment to revising laws and regulations—related to ICT hardware, cloud services, encryption, and data flows—to ensure American companies are able to sell their products and services into China and do so without transferring technology and giving up their brands. Such a step will also ensure that Chinese enterprises and consumers continue to have access to the best technology available. It would also support China’s efforts to promote innovation, which today is a global undertaking.
2. Comply with multilateral obligations and bilateral commitments to open the electronic payments market.
By the end of 100 days, China should implement fully its 2001 WTO commitment as well as its compliance obligations under a 2012 WTO case to open its electronic payments market to U.S. and other foreign companies. Applications for licenses should be processed quickly, and licenses should not be capped. Arbitrary national and cybersecurity reviews that do not exist elsewhere in the world should also be lifted. China regrettably has continued to foster an uneven playing field in its electronic payments market, while protecting SOE monopolist China UnionPay and encouraging national champion Alibaba to make acquisitions in the United States and other markets. Increased competition in this sector will promote increased productivity and efficiency in the Chinese economy.
3. Open commercial procurement opportunities to American innovative goods and services.
Despite past commitments, China has accelerated issuance of new measures that link procurement preferences to domestic content and innovation. The Chamber has documented many of these preferences in our recent report, Made in China 2025: Global Ambitions Built on Local Protections. Medical devices offer an illustrative example: made in China 2025 and related policies call for significant domestic production requirements for core components of medical devices and high-end medical equipment. Such targets limit opportunities for U.S. companies to export goods into China. Removal of such policies at the end of 100 days, combined with measurable increases in the U.S. exports of medical devices and other high technology products to China in the near term, would send an important signal that China is willing to allow outcomes based on market competition, not government fiat. China too would benefit from lower prices and an expanded choice of products.
4. Open the Chinese market to U.S. agricultural exports.
Despite Chinese Premier Li Keqiang’s 2016 commitment to open its market to U.S. beef imports, China’s beef market remains closed to U.S. exports. Further, U.S. agricultural biotechnology traits, which reflect cutting-edge American innovation, also continue to face persistent delays in regulatory approvals, restricting market access and limiting export opportunities for American companies globally. By the end of 100 days, both sides should complete implementation of the technical process that would allow U.S. beef to enter the Chinese market, and China should clear out the backlog of pending biotechnology trait approvals.
5. Take immediate steps to curb Chinese overcapacity in steel and aluminum.
Chinese over-production at home has long distorted global markets, putting downward pressure on global prices, and, as a result, impairing U.S. producers’ competiveness not only in the United States but around the world. China should make cuts to production at the end of 100 days that result in significant measurable reductions to overall capacity and thereby arrest rising trade tensions in these areas. Such a step would be consistent with the recognition by China’s leaders that it must deal with the overcapacity issue to address deep distortions in China’s economy.
There are additional, immediate steps that China should take that are in its own interest and which would also promote U.S. services exports. For example, China should remove equity caps in a range of services including for U.S. financial services firms.
July 16 should not be the finish line, but a starting point. To continue this conversation and chart a long-term course for relations, the U.S. Chamber of Commerce, together with the American Chamber of Commerce in China, is hosting the 8th China Business Conference in Washington, D.C. this week.
The U.S.-China bilateral relationship needs solutions not just the days ahead, but for the decades ahead. Results from the 100-day plan, if they are meaningful and implemented fully, have the potential to lead the way. We believe the tradition of openness of the U.S. economy to foreign trade and investment has helped the US create the strongest, most dynamic economy in the world, and should be continued. We believe such an approach would also be highly beneficial for China. Their 100-day plan is a chance to chart a win-win path forward for both countries.
About the authors
Jeremie O. Waterman is president of the China Center and vice president for Greater China at the U.S. Chamber of Commerce. Waterman is responsible for developing and executing Chamber policy initiatives in China, Hong Kong, Taiwan, and Mongolia as well as steering the Chamber’s policy work in the Asia-Pacific region.