US trade policies first hurt US companies in China

The protectionist trade policies launched by Donald Trump and continued by Joe Biden have weakened the ability of American companies to defend themselves in China and elsewhere in Asia. New search shows that this is yet another example of how America-first trade policies have put Americans and American businesses last.

“China’s regulatory crackdown has affected both American and Chinese businesses, but the protectionist trade policies implemented by the Trump administration and continued by the Biden administration have severely restricted the ability of the U.S. government to protect American businesses on the market. Chinese market,” writes Henry Gao, a leading business expert and associate professor of law at Singapore Management University, in a new study for the National Foundation for American Politics. “Unless the U.S. government changes course, U.S. businesses will be increasingly unable to address perceived wrongs in Chinese government policies and will be placed at a significant economic disadvantage across much of Asia. .”

In 2021, China enacted a series of regulatory “crackdowns”. These included the suspension of the initial public offering (IPO) of Ant Financial, the investigation of Alibaba for violation of antitrust laws and Didi for cybersecurity, the imposition of new restrictions on computer games and the ban private tutoring companies. Gao points out, “Although these regulatory measures caused great havoc in the market, people normally assumed that they only affected China’s own companies and did not understand the wider implications for foreign companies.”

Gao explains that foreign companies, including many American companies, have many interests that can be harmed by the Chinese government’s stricter regulatory policies. These include investment interests, such as forced divestment from a previously legal sector or companies facing a new ban on foreign investment in a sector. U.S. suppliers to Chinese companies may also incur significant business or transaction costs in a more tightly regulated industry.

Governments normally protect their country’s corporate interests, and providing such protection was one of the main reasons cited by the Trump administration for launching the trade war against China. The Trump administration in 2018 China Section 301 Report cites Chinese government regulatory policies and other practices to justify US government tariffs on imports from China.

“Even though in recent years many U.S. policymakers have said trade actions against China were due to China’s treatment of U.S. businesses, U.S. protectionist policies have limited the U.S. government’s ability to respond to government policies. that affect American businesses,” according to Gao. “America First’s trade policies have limited the ability of the United States to seek redress, change, or encourage improvements in Chinese regulatory policies that could harm American businesses.

“Even if the United States were to overcome several hurdles and win a case against China at the World Trade Organization (WTO), it still could not enjoy the fruits of its success due to the paralysis of the World Trade Organization (WTO). WTO appeal, thanks to the Trump and Biden administrations’ continued blocking of the launch of its judicial nomination process. Simply put, even if China loses the case, it could simply “appeal in a vacuum” and turn America’s hard-won victory into “useless paper”, leaving the United States without recourse”.

Gao notes that there are other problems with the US approach. “In addition to the irrational blocking of appointments to the WTO Appellate Body, there are at least two other strategic blunders over the past five years that, if rectified, could have placed American companies in a better position. One is the negotiation of the bilateral investment treaty (BIT) between the United States and China, which was launched in 2008 and suspended indefinitely when Trump took office in 2017. The other is the partnership agreement transpacific (TPP), which again saw Trump withdraw from the case when he entered the White House. Both agreements include several useful features for US investors.

“First, there are market access commitments that open up more sectors to US investors,” Gao writes. “Most importantly, these investment agreements typically include mechanisms to prevent the rollback of commitments, such as standstill obligations, which serve to ensure that a Party does not renege on existing commitments and does not bind liberalizations at status quo levels; and ratchet provisions, which go further by obliging Parties to any autonomous liberalization they may introduce in the future. Since several of China’s regulatory crackdowns involve the banning of previously authorized business activities, both of these provisions would be useful.

“Second, these agreements generally include substantive obligations protecting the interests of foreign investors, such as a minimum standard of treatment or fair and equitable treatment, which could be helpful to foreign investors facing such arbitrary and unfortunate repressions. , these agreements require that compensation be paid to foreign investors in the event of expropriation, which covers not only the direct nationalization of the investment, but also indirect expropriation such as regulatory measures that render investments worthless, which is exactly the type of scenario we have here.

“Thirdly, and most importantly, both agreements would include an Investor-State Dispute Settlement (ISDS) mechanism, which allows affected foreign investors to seek independent arbitration against the Chinese government. In such arbitrations, investors generally have a much better chance of obtaining appropriate compensation than in the domestic courts of host countries.

Gao recommends that the United States return to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, successor to the TPP). This would give the United States and American companies leverage when China also joins the deal and engages in regulatory crackdowns. Gao warns that time is running out. “But the United States needs to do this quickly, because China has already submitted the request to the CPTPP, and this is a very serious offer. The United States has a narrow window of opportunity of two to three years before that China’s request would not be granted, but if they dithered further, it would be extremely difficult, if not impossible, for the United States to enter after China joined, because China will demand its pound of flesh, just like what the United States did in China’s WTO accession process.

Richard Haass, president of the Council on Foreign Relations, echoes Gao’s concerns. “American trade policy has been shaped by similar forces, demonstrating further continuity between Trump and Biden,” Haass writes in Foreign Affairs. “The latter avoided the hyperbole of the former, which trashed all trade pacts except those his own administration had brokered. . . But the Biden administration has shown little, if any, interest in bolstering the World Trade Organization, negotiating new trade deals or joining existing ones, including the successor agreement to the TPP, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, or CPTPP, despite the overwhelming economic and strategic reasons for doing so. Staying out of the deal leaves the United States on the fringes of the indo-pacific economic order.”

Gao is hopeful, if not optimistic, as he notes that international trade and investment agreements offer ways to address another country’s problematic regulatory practices. “Unfortunately, many of these tools are not available to the United States, largely because the United States has cut its claws under the Trump administration by withdrawing from international agreements designed to address exactly these issues. “, concludes Gao. “It is disconcerting that the Biden administration, with its professed affinity for multilateralism, continues to remain aloof from international rule-making efforts. With China’s recent regulatory crackdowns, a new sense of urgency is being created for the United States to return to the international regulatory arena.

Comments are closed.