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U.S. Business Groups Urge China to 'Redouble Efforts' to Implement Trade Deal -- Update

07/06/2020 | 05:19pm EDT

By Lingling Wei and Bob Davis

NEW YORK -- As senior U.S. and Chinese economic officials plan to discuss China's compliance with a trade deal signed early this year, more than 40 American business groups called on Beijing to step up purchases of U.S. manufactured goods as well as energy and other products as part of the agreement.

In a letter sent Monday to Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, the business associations, led by the U.S. Chamber of Commerce, voiced strong support for the "Phase One" trade pact but pressed both sides -- especially China -- to "redouble efforts to implement all aspects of the Agreement."

The letter was also signed by the Business Roundtable, the U.S.-China Business Council and other trade groups covering a swath of industries including aerospace, autos, semiconductors and pharmaceuticals. The groups expressed their concerns that China is falling short of the overall purchase targets laid out in the trade deal despite progress it has made toward buying American farm products.

Beijing has focused on agricultural purchases, which President Trump made the core of his demands during two years of negotiations. Chinese officials believe that if they keep ramping up such purchases, that will help keep the deal alive, according to people with knowledge of Beijing's thinking.

"We want to express support for the Phase One agreement and underscore the critical need for the agreement to be fully implemented," said Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber. "The business community wants to prevent this deal from becoming a casualty of the rising tensions in the bilateral relationship."

Messrs. Lighthizer and Mnuchin didn't respond to requests for comment.

Washington and Beijing signed the purchase-centric trade deal in January following a nearly two-year tariff war that had hurt both economies and battered global markets. While it didn't cover thornier economic changes sought by the Trump administration, such as China's industrial subsidies and reform of its vast state sector, the agreement at the time helped put a floor under a deteriorating bilateral relationship.

Since the signing of the agreement, however, relations between the two world powers have strained further. The Trump administration is challenging the Chinese leadership under President Xi Jinping over a host of issues, ranging from its handling of the coronavirus outbreak, to Beijing's tighter rule over Hong Kong, its repression of Uighurs in Xinjiang in western China and military maneuvers in the South China Sea.

For now, the trade deal, however limited, is emerging as one of the few channels through which both sides are engaging with each other. U.S. and Chinese negotiators led by Messrs. Lighthizer and Liu plan to have a phone conversation in mid-August to assess the deal's implementation, according to people familiar with the matter.

Although the trade associations sought to bolster the White House's efforts to get China to carry out the deal, some in the administration worry that the president could read the letter to mean the opposite -- that the business community is souring on the agreement because China isn't complying. That could add to conservative pressure on Mr. Trump to scrap the agreement.

Clete Willems, a former Trump White House trade negotiator, says the trade deal is crucial to keeping pressure on Beijing. "If you don't have an agreement you have no way to fix problems," he said. "There's no way to leverage additional purchases; there's no way to fix biotechnology issues."

With the U.S. presidential election approaching, Mr. Trump has said the trade agreement is on track even though some administration officials have suggested otherwise. In Beijing, hard-line sentiment against the U.S. is also rising and senior officials including China's top diplomat Yang Jiechi and Mr. Liu, Mr. Xi's economic captain, have warned Washington against meddling too much in issues including Hong Kong.

Now, as China is lagging behind its commitment under the trade deal, U.S. business leaders, traditionally Beijing's biggest allies in Washington, worry that the deepening animosity between the two nations could further undermine commercial relations.

Under the trade deal, Beijing has agreed to boost its purchases of American agricultural and manufactured goods, energy and services by $200 billion over two years, a more rapid and sustained pace than at any time since China's 2001 entry into the World Trade Organization. In 2017, before the trade war, the U.S. exported $130 billion in goods to China.

While China has recently stepped up its purchases of made-in-the-U.S. chicken feet, pork and other farm products, it remains a long way from meeting the targets, partly because of reduced demands during the pandemic. As of May, China's purchases of all covered products were $26.9 billion, only at around 45% of their year-to-date targets, according to Chad Bown, a senior fellow and trade expert at the Peterson Institute for International Economics.

Of the Chinese purchases, manufactured goods were at 56% of the year-to-date target; farm products -- even with recent increased buying -- were at 39% of the year-to-date target, while energy was at only 18%, Mr. Bown's calculations show.

In its Monday letter, the business groups urged Chinese government agencies and state-owned companies to "play a leading role by increasing their purchases of U.S. exports" such as aircraft, petroleum products and natural gas. State-controlled entities are usually more responsive to government decrees regarding purchases and procurement than private businesses.

Some economists have expressed concerns that such managed trade could further strengthen the state's role in China's economy. Mr. Brilliant of the U.S. Chamber said the long-term goal for his organization is to push for market-oriented reforms in China that could make it easier for foreign businesses to compete in the country. "For now, we're pragmatic and very focused," he said. "The Phase One agreement is a floor not a ceiling."

The letter also called for China to remove some nontariff barriers to increase its U.S. imports. For instance, it says China should remove its "buy local" policies for medical equipment and refrain from drastically cutting prices under its "volume-based" procurement system for medical devices. China should also accelerate its marketing review and approval of innovative medicines and better protect pharmaceutical patents, the letter recommends.

One major hurdle for Beijing to meet its purchase commitments is its own initiative to reduce China's reliance on American technology. A major project that started last year aims to purge Chinese government agencies, telecommunications companies and power grids of foreign hardware and software by the end of next year.

"China's effort to have a more self-sufficient supply chain could make it harder to increase purchases such as top-line medical equipment," said Brad Setser, a senior fellow at the Council on Foreign Relations.

Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at bob.davis@wsj.com


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