As Washington and Beijing mull a new mechanism to regulate trade between the world’s two largest economies, some analysts warn it could interfere with market forces, while others see it as a path to smoother coexistence.
What is the managed approach to trade that Donald Trump’s administration is seeking with China, as both sides work towards the US president’s possible meeting with Chinese leader Xi Jinping in the coming weeks?
What is a “Board of Trade”?
After top US economic officials held talks with their Chinese counterparts in Paris last weekend, US trade envoy Jamieson Greer said the two sides discussed the creation of a “US-China trade board”.
The mechanism will help formalize and identify the types of goods the United States should export and import from China, he said.
The board could explore options for expanding trade in non-sensitive products, or discuss reducing reciprocal tariffs in non-strategic sectors, said Wendy Cutler of the Asia Society Policy Institute.
For now, officials appear to have made progress toward Chinese commitments to buy agriculture, energy and aircraft from the United States, added Cutler, a former U.S. trade official.
Is this new for US-China relations?
The talks come as Washington looks toward “managed trade,” which Chad Bown of the Peterson Institute for International Economics said focuses on outcomes rather than policies.
That could mean import commitments or voluntary export restrictions, as in the case of Japan in the 1980s to manage the flow of cars to the United States, he said.
A more recent example is the “Phase One” agreement Washington signed with Beijing during Trump’s first presidency, marking a truce in their trade war, Bown added.
The deal saw China agree to import $200 billion in US goods over two years – although China did not follow through on the pledge.
Why has this caused concern?
“Instead of removing regulations, lowering fees and making it easier for customers and companies to decide what to sell at what prices, it (would be) more mechanized,” said Joerg Wuttke, a partner at advisory firm DGA-Albright Stonebridge Group.
“This is not a good sign,” he told AFP. “Where are the market forces?”
Such an approach is also not good for competition and could raise concerns among other trading partners, Wuttke warned.
A US-based business leader, speaking on condition of anonymity, said the trade management raises concerns about how Washington will decide which industries will be prioritized and which sectors will benefit.
Does it help the relationship?
Bown of PIIE believes that a managed trade agreement between the United States and China could be more successful than previous attempts to resolve economic conflicts.
The question is whether that leads to “a more stable, longer-term relationship” that’s better than a “constant back-and-forth conflict,” he said.
“Clearly the old system didn’t work. Can we try a new system that might work?”
But any trade agreement must be realistic and acceptable to both parties.
“You have to have a genuine commitment from both sides to make this work,” he added. “Even then, it’s going to be really, really hard.”
