Week in Review: Comprehensive Economic Dialogue and JCCT options; China not to be cited as currency manipulator

By Meg Kelly

Despite no significant breakthroughs on key issues in the relationship, the White House and Chinese media reported that the first meeting of Presidents Donald Trump and Xi Jinping  was favorable. Trump indicated he and Xi began a good relationship, saying in a Fox News interview this week that the pair had “great chemistry.”

 

Following the meeting, the President this week moderated his positions on key China-related issues, including currency manipulation and actions toward North Korea. Trump also spoke about downgrading his administration’s focus on the trade deficit as a measure of the relationship in favor of strategic concessions from China.

 

Treasury and Commerce to lead Comprehensive Economic Dialogue

 

As reported previously in Washington Update, Trump and Xi agreed to a new framework for the bilateral relationship, with four pillars: strategic and diplomatic, economic, law enforcement and cybercrime, and culture. The new framework effectively breaks the Obama administration’s Strategic and Economic Dialogue (S&ED) into two separate discussions, something recommended by the US-China Business Council.  The Comprehensive Economic Dialogue will be led by Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross. As part of the 100-day action plan for trade, the new economic dialogue held an initial meeting during last week’s summit, though USCBC understands that a formal meeting of the dialogue may occur during the hundred day period, which ends in mid-July.

 

It remains unclear what the fate will be of the Joint Commission on Commerce and Trade (JCCT) led by the Secretary of Commerce and the US Trade Representative (USTR). According to USCBC sources, discussions have not yet been held on the topic. It is possible that the JCCT could be maintained as a separate dialogue, potentially reporting to the the new Comprehensive Economic Dialogue. Alternatively, the multiple JCCT working groups on individual business issues such as pharmaceuticals and medical devices, cosmetics, and insurance, could become working groups of the new dialogue, or, more drastically, the JCCT and its working groups could be eliminated entirely. Given the uncertainty, it remains unclear what role USTR will play in the new structure.

 

USCBC is hosting a briefing on April 19 with National Security Council Senior Director for Asia Matthew Pottinger, which will provide an opportunity to learn more about the discussions in Florida and anticipated next steps. Pottinger was among the eleven US officials that attended Trump and Xi’s meeting on April 7.

 

Trump: China not a currency manipulator, ahead of Treasury report

 

In a reversal from his comments during the 2016 campaign and his first weeks as president, Trump this week told the Wall Street Journal that China is not a currency manipulator.

 

The Treasury Department’s semi-annual report on exchange rates is due April 15 and evaluates three criteria: whether a country has a significant bilateral trade surplus with the US, a material current account surplus (generally calculated as 3 percent or more of GDP), and engages in persistent one-sided intervention in the foreign exchange market. Countries determined to meet all three criteria are cited for manipulating their currencies. No country has been cited as a currency manipulator since 1994.

 

While China will not be cited for manipulating its exchange rate for trade advantage, it is possible that it will be maintained on a “monitoring list,” a label created by the department in 2015 and to which China has been cited consistently. The monitoring list includes countries that meet two of of the three factors. Countries remain on the monitoring list for a year, despite the semi-annual evaluation. While China did not meet the criteria in October during the last report of the Obama administration, it has remained on the monitoring list since last year’s April report as a result.

 

Senate Minority Leader Chuck Schumer, a long time critic of China’s exchange rate policies, criticized Trump’s announcement, saying he failed to live up to his campaign promise to label China a currency manipulator. Schumer called the President’s meeting with Xi “disappointing” on this front. He reiterated that Senate and House Democrats are working on a set of strong trade proposals “aimed at China.” USCBC will report on details of the measures when details become available.

 

Commerce uses new authority in trade case, providing a potential path to address Chinese dispute with US on nonmarket economy status

 

The Commerce Department this week used a new trade remedies calculation in a dumping case against products from South Korea which may provide an option for resolving a dispute between the United States and China over China’s non-market economy (NME) status.

 

The calculation taking into account “particular market situations” was authorized by Congress as part of the Trade Preferences Extension Act of 2015 and allows the Commerce Department to use an alternative calculation from normal dumping methodologies to address situations where the costs of production do not accurately reflect normal costs. USCBC has advocated using this approach for cases involving China, which has multiple sectors that continue to not operate as a market economy. The European Union, which China has also challenged at the World Trade Organization over this issue, is also considering using an alternative methodology to address calculations for countries in which there are significant market distortions.  

 

In a statement Tuesday announcing the action Secretary Ross said, "We will not stand for the distortions in foreign markets being used against US businesses. The Trump administration will continue to employ all of the tools provided under the law to take swift action against harmful trade practices from foreign nations attempting to take advantage of our markets, workers, and businesses."

 

Erin Ennis, USCBC Senior Vice President, said in a statement to Politico this week that the move could provide a resolution to the NME issue with China. "There needs to be a rigorous, grounded process for demonstrating a sector or producer qualifies for using an alternative methodology, to avoid simply using this approach for protectionist purposes,” she said. “If the administration has found a way to achieve that goal, we would welcome it."

 

Possible new executive order on trade

 

Following two executive orders on trade in recent weeks, Trump is reportedly considering another order which would target “unfair product dumping.” The order would promote investigations into unfair dumping of products in the US market, though this is already possible without executive approval. The order is intended to target steel and aluminum as well as household appliances. USCBC will report on details as they become available.

 

Nominations and Confirmations

  • Gilbert Kaplan was nominated by Trump to serve as undersecretary of Commerce for international trade. Kaplan was a longtime trade attorney and partner at King & Spalding. He served previously in multiple Commerce positions. In its announcement of the nomination, the White House noted that Kaplan was the first lawyer to win a US anti-subsidy case against China on coated paper and standard pipe. In his new position, he will be responsible for the department’s trade functions, including trade remedies and export promotion activities.

  • Trump nominated John Sullivan, a partner at Mayer Brown who previously served in George W. Bush's administration, to work under Rex Tillerson at the State Department as deputy Secretary of State.

  • Action is expected on USTR-designate Robert Lighthizer’s nomination when Congress returns to work during the week of April 24, after a two-week break.

  • Ambassador to China-designate Terry Branstad does not have a confirmation hearing date, but as reported previously in Washington Update, it is currently expected to be held in early May, and arriving at his post in Beijing by early June.