Losses in the hundreds of billions of dollars may await China in the coming months – and it’s all because of a document that has just been adopted in the United States. Now, everything depends on the decision of the next White House administration and Donald Trump personally. What is at stake, and how does Trump want to squeeze China out of the American market?
The U.S. China Economic and Security Review Commission (USCC) recommended stripping China of its Permanent Normal Trade Relations (PNTR) status. This move is intended to facilitate the introduction of the trade tariffs promised by Trump on Chinese goods. This is the first time that the USCC, in its annual report to Congress, has openly called for an end to a policy that has been a cornerstone of China’s economic rise over recent decades. In 2022, the Commission had proposed to Congress to temporarily suspend China's PNTR status if the U.S. Trade Representative determined that Beijing had failed to meet its World Trade Organization (WTO) obligations regarding market access.
The PNTR status was approved by Congress for China in 2000 in exchange for Beijing’s agreement to open its markets and liberalize trade practices before joining the WTO. This status obligates Washington to apply the same basic tariffs and privileges to Chinese goods as it does to most of its trade partners, in accordance with U.S. commitments under the WTO. It was also in October 2000 that Congress created the independent USCC, composed of 12 commissioners appointed by Congress. Its role was to monitor U.S.-China relations in trade and security and to provide annual reports to U.S. lawmakers on these issues.
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According to WTO rules, the U.S. can strip a country of trade advantages under exceptions for national security reasons. The Biden administration used this rationale when imposing sanctions on Russia after the start of the Ukraine conflict in February 2022 (without specifying what exactly constituted a national security threat to the U.S.). In relation to China, American lawmakers want to free their hands in advance, creating the possibility of imposing tariffs or sanctions without any conditions or timelines.
Last week, Representative John Moolenaar, a Republican from Michigan and chairman of the House China Committee, introduced a bill to revoke China’s Permanent Normal Trade Relations status. He cited U.S. Trade Representative Katherine Tai’s assessment that China still adheres to a "state-managed, non-market approach to its economy and trade," which contradicts WTO norms and principles. The bill is likely to gain support from Republicans, including Tom Cotton of Arkansas and Marco Rubio of Florida (Trump’s current nominee for Secretary of State), who were strong advocates for revoking PNTR for China during Trump’s first term. Democrats during Biden’s presidency also pressured China by limiting chip supplies and increasing military tensions between the two countries. However, Biden’s administration’s ultimate goal was to force Beijing to retreat and engage in what is called "decoupling."
In Washington’s interpretation, this would mean preserving a global economy where the U.S. would hinder the development of China's high-tech sectors while allowing it to continue earning revenue from supplying mass consumer goods to America. Chinese oligarchs were subtly hinted that they could return to a "business as usual" scenario if they could deal with Xi Jinping and avoid interfering in high-tech areas.
The Trumpist position is different. They want to strengthen America’s industrial power, even if it requires sacrificing the interests of global financial conglomerates and the very existence of a unified global economy. In this scenario, Chinese products would be forcefully squeezed out of the U.S. and several countries crucial to American economic interests. Whether China will find alternative markets to replace the U.S. is of little concern.
In a report published Tuesday, November 19, the Commission justified its recommendation to Congress to revoke PNTR status by stating that it "allows China to benefit from the same trade terms as U.S. allies despite its practices of intellectual property theft and market manipulation." Among the Commission's findings is also a recommendation for Congress to revoke the de minimis exception for e-commerce goods. This provision, enshrined in U.S. trade law, allows goods worth less than $800 to enter the U.S. duty-free and with less oversight from regulatory agencies. USCC experts refer to statements by U.S. officials that the "de minimis loophole" used by Chinese e-commerce companies like Shein and Temu harms U.S. jobs and could allow Chinese companies to deliver illegal products, including materials related to fentanyl.
China's Four Red Lines: Xi's warning to Biden and Trump. — November 17, 2024.
The recommended revocation of PNTR status would enable a Trump administration to increase tariffs on a wide range of Chinese products. Additionally, without this status, China could face annual reviews of its trade practices, as was the case before PNTR was granted. As USCC commissioner Jacob Helberg stated, "Increasing tariffs on Chinese industrial goods will accelerate the return of supply chains to the U.S., which aligns with President-elect Donald Trump's argument for imposing universal tariffs on imports."
The Chinese Embassy in Washington immediately responded to the recommendations in the USCC report. "Attempts to return U.S.-China trade and economic relations to the Cold War era violate WTO rules and will only harm the mutual interests of both countries and undermine the global economy," said embassy spokesperson Liu Pengyu.
In 2023, China's exports to the U.S. amounted to $448 billion (compared to $505.6 billion in 2017). China has already been surpassed by Mexico ($480 billion) and is only slightly ahead of Canada ($429 billion). U.S. imports from China totaled $147 billion. In this regard, China ranks third, behind NAFTA (USMCA) countries Canada ($352 billion) and Mexico ($323 billion). The U.S. trade deficit with China in 2023 was an unprecedented $301 billion, and it could increase by 4.4% this year.
If Trump imposes the 60% tariff he has promised (which would be easy to do if the USCC's proposal is adopted), the volume of Chinese goods entering the U.S. will drop sharply. China’s trade surplus with America will also shrink drastically. Even for Chinese companies that don’t leave the U.S. market, profitability will plummet. For those for whom the U.S. market is effectively closed, things will be much harder. Bankruptcy of a number of companies, mass layoffs, and decreased budget revenues are possible.
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