U.S.-China Trade: Yes it is Time to Try Something Different!

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The meeting between President Donald J. Trump and President Xi Jinping appears to have been a productive first get together between the leaders of the world’s most important bilateral economic and political relationship.   SIIA was pleased that President Trump raised concerns about, among other topics, China’s cyber policies on U.S. jobs and exports. 

 

Clearly, while the Joint Commission on Commerce and Trade (JCCT) and the Strategic & Economic Dialogue (S&ED) are useful mechanisms, there is a need to think creatively about how to structure the bilateral economic and cybersecurity conversation with the expectation that it will yield better results than previous efforts.  This is why we welcome the creation of the U.S.-China Comprehensive Dialogue – the economic and the law enforcement/cybersecurity dialogue pillars are of particular interest to SIIA.  We wish Secretary Ross and Secretary Mnuchin success in leading the economic dialogue. 

 

As mentioned earlier, there is a long history of U.S.-Chinese economic dialogue and not all of it has been unproductive.  Perhaps the Trump Administration will be more successful for three reasons.  First, the United States and China are establishing a 100 day (a short period in conventional trade terms) plan to create, as Secretary Ross puts it, “way stations of accomplishment along the way.”  Second, the dialogue will focus more on results, rather than process and/or a legal commitment compliance oriented approach.  Third, China told the Trump Administration that it wants to reduce its net trade surplus [with the United States] for its own economic reasons.  

 

There are a few things that China could do quickly that would benefit SIIA members.  The 2017 National Trade Estimate report  provides an excellent summary of what needs to be done in general.   Removing services barriers especially would play to America’s strengths.  It is worth recalling in this context that, yes, the United States ran a $347 billion goods trade deficit with China in 2016.  But our services surplus was $33.3 billion.  This is admittedly only a tenth of the goods trade deficit.  Nonetheless, it is likely that if U.S.-China trade is configured more equitably, services are going to play a big role in increasing U.S. exports to China.  Electronic payments, theatrical distribution, banking, insurance, financial assets, telecommunications, audio-visual, express delivery, and legal services all face restrictions in China.     

 

Specifically with respect to digital trade, U.S. firms ought to be able to provide cloud computing services in China.  It is unacceptable that Chinese consumers cannot access 11 out of 25 of the world’s most important consumer websites.  In fact, roughly 3,000 websites cannot be accessed by Chinese consumers.  Voice-over-Internet Protocol services are restricted for no obvious reason.  Internet domain resources such as domain name registration procedures are subject to opaque rules that make it difficult for U.S. firms to provide services to businesses and consumers.  The Cybersecurity law remains problematic because of the “secure and controllable” philosophy underpinning it.  While “secure and controllable” policies were suspended for the banking sector, they remain a threat to the insurance and electronic commerce sectors.  There are restrictions on online video and entertainment software that should be removed.  Intrusive encryption rules should be excised.  There is no reason why Internet-enabled payment services cannot be offered.   And intellectual property rights in general need to be enforced and respected.

 

Most recently, the Cyberspace Administration of China (CAC) released draft security assessment measures for cross-border transfers of personal information and important data.  We are reviewing the draft together with other industry groups.  Preliminarily, however, it is clear that the proposal is very restrictive and contradicts the logic of Internet-based commerce. That is that data should be stored wherever it makes sense to store it from a network management and economic perspective.  This also benefits cybersecurity.  We hope these measures are included in a U.S.-China dialogue on how best to improve trade ties.

 

So as is inevitable with China, quite a long list.  One way of perhaps conducting the conversation is to insist on reciprocal treatment in as many sectors as possible.  China might push back, citing restrictions, for instance, on Huawei’s ability to provide network equipment in the United States.  But this is something of a red herring.  The reality is that the U.S. market is far more open, including in the ICT and content sectors, than China is to U.S. firms.  We stand ready to assist the Administration in any way we can to take advantage of this reality as we seek to achieve more balanced trade rules and outcomes between the United States and China.     

Carl Carl Schonander is Senior Vice President for Global Public Policy.