On Friday, April 14, the U.S. Department of Treasury published a widely anticipated semi-annual report detailing the foreign exchange practices of America’s major trading partners. Although he regularly called for China to be labeled as a “currency manipulator” as a candidate, President Donald J. Trump and his administration declined to use the occasion of this report to do so. Mr. Trump previewed this decision days earlier in an interview with the Wall Street Journal, reflecting the consensus among economists that the Chinese “are not currency manipulators.” While, according to many economists, the Chinese government did keep the value of the Renminbi (“RMB”; also known as the “Chinese yuan”) at an artificially low level for many years, Chinese policymakers have been hard at work trying to prop up the currency since 2014 due, in part, to a strengthening U.S. dollar and surging capital outflows.
The decision not to label China as a currency manipulator comes on the heels of the first in-person meeting between Mr. Trump and Chinese President Xi Jinping. On April 6 and 7, Mr. Trump hosted Mr. Xi at his Mar-a-Lago estate in Florida for a two-day summit, an important weather vane for near-term relations between the United States and China. Despite concerns that strategic differences over thorny issues such as North Korea and the South China Sea or harsh rhetoric regarding U.S.-China trade relations from Mr. Trump in advance of the meeting might sour the mood, both sides came out of the meetings with a buoyant step. The two sides agreed to implement a new, comprehensive framework for bilateral negotiations that will shape U.S.-China engagement in the years to come. Further, U.S. and Chinese officials announced a plan to reach agreement, within 100 days, on steps that can be taken to address trade-related frictions between the two countries.
For much of the Obama presidency, bilateral negotiations between the U.S. and China were centered around two main events: the U.S.-China Strategic and Economic Dialogue (“S&ED”) and the Joint Commission on Commerce and Trade (“JCCT”). During this first face-to-face encounter, Mr. Trump and Mr. Xi agreed to a new framework for high-level negotiations called the “U.S.-China Comprehensive Dialogue,” which is to cover four main tracks: diplomacy and security, economics, law enforcement and cybersecurity, and society and culture. Few details have been released as to how the new dialogue will work in practice, and which of the components of the S&ED and JCCT might be preserved in this new framework.
The 100-day plan for trade negotiations is aimed at addressing trade frictions, particularly with regard to increasing U.S. exports and reducing the U.S. trade deficit with China. Few details about what the 100-day plan will entail have been released, and many details are yet to be negotiated. However, it appears that these negotiations will focus on securing Chinese commitments on a range of U.S. exports including beef (banned in China since 2003) and other agricultural products, steel, oil, and gas. Additionally, the Chinese might provide greater market access for U.S. investments in the financial sector—e.g., in securities and insurance. U.S. Treasury Secretary Steven Mnuchin explained during a press briefing that there was a “very wide range of products that we discussed.” According to some reports, at least some Chinese commitments proposed at this early stage may have originally been intended for offer in the context of the bilateral investment treaty negotiations between the U.S. and China, the prospects for which are now less certain.
The current dynamics present significant opportunities for individual businesses and industry groups. Businesses seeking access to the Chinese market for exports or investment should consider engaging with U.S. policymakers to leverage the situation and make a case for addressing their specific needs during the current round of negotiations. Even if the 100-day plan does not bring about the kind of comprehensive economic benefits potentially possible under a bilateral investment treaty, companies with interests in China should see this as an opportunity to seek relief in a Chinese business environment that, according to over 80% of member companies responding to an AmCham China survey, has become less friendly to foreign business than in the past.