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Section 301 Tariffs Counterproductive, but No Path to Lift Them, Panelists Say

Countries whose industries have been damaged by Chinese oversubsidization and overcapacity have tried to discourage subsidies in China, with results that have "been mixed at best," said Anna Ashton, the Eurasia Group's director of China corporate affairs and U.S.-China relations. She said allowing China to join the World Trade Organization, more than 20 years ago, was part of this system of carrots and sticks to effect changes in China.

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"China did become much more open and market-oriented in some ways," but since 2008, it has been ramping up its government intervention in its economy, said Ashton, a panelist on a Washington International Trade Association webinar Sept. 16 on Chinese industrial policy.

The Section 301 tariffs that have been levied on most Chinese imports are an effort to punish China for that policy, which the U.S. sees as damaging to its companies and its interests. Ashton said that while that action was meant to push China away from state-owned enterprises and oversubsidization, she said it has "possibly intensified and accelerated" China's efforts to leapfrog its economic competitors in technology.

She said that it seemed like former President Donald Trump's trade war was "a lot like our response to Japan in the 1980s," which Trump's U.S. trade representative, Robert Lighthizer, was also involved in. But, she said, "different dynamics in the U.S.-China relationship have resulted in a different outcome."

Moderator Clete Willems, a negotiator in the Trump administration to get the phase one deal that stopped the escalation of the trade war, said to Ashton: "You suggest what we’re doing is not changing China’s behavior and maybe we shouldn’t have done it."

Ashton said it's worse than that. "It’s not that what we’re doing isn’t changing China’s behavior, it may be accelerating China’s undesirable behavior." She said China is moving faster to stop buying U.S. firms' semiconductor chips because of our expansion of entity lists and our characterizing their ambition as a threat.

Gerard DiPippo, a senior fellow for economics at the Center for Strategic and International Studies, agreed that China is being more aggressive in advancing its own technology firms because of U.S. actions.

In response to a question from International Trade Today, Ashton said, "I don’t personally see a ton of strategic value in the existing tariffs for reforming Chinese behavior, but I think that removing the tariffs without some sort of reform of Chinese behavior is also a nonstarter." She said any administration, whether this one or a future Republican White House, would want to trade removing the tariffs "to get something out of China. The problem right now is there's so much tension in the relationship, we can’t even get to the table to discuss what that something should be."

That's not to say China doesn't reduce subsidies for its own reasons sometimes. DiPippo noted China did reduce excess capacity in steel and aluminum. "They're trying to get away from upstream heavy industrial reliance," he said. "I don’t think it’s true to suggest that they actually haven’t learned" that too high subsidies are wasteful.

He noted that has been fraud in China related to its subsidies of semiconductor manufacturing, but it may be that China has advanced its capacity to make smaller, more advanced chips. He said advancing in semiconductors may be China's top economic priority, even ahead of advanced materials and electric vehicles.

Still, he said, "The Chinese government doesn't have a good sense of how effective their own policies are. Chinese planning ability is overhyped."

Michael Beckley, Tufts University associate professor of political science and author of the book Danger Zone: The Coming Conflict with China, said all the factors that propelled China's economic rise -- easy access to Western markets, abundant natural resources, a government committed to economic reforms and a growing, youthful workforce -- are drying up now, while "at the same time China faces an emerging ring of encirclement."

In his view, China is no longer rising but is peaking. He said history shows that when a country starts to peak, it doesn't generally "mellow out," and become a responsible global player, or even "a reluctant stakeholder in the system."

He said instead, these countries have tended to create exclusive economic zones overseas, as China is attempting to do with Belt and Road, or they invaded other countries.

"We worry that China seems to be trying to inch down this very dangerous direction," he said, adding that "the U.S. and allies are horribly exposed" in numerous areas.

The consequences of the trade war for U.S. importers are well-known, but Ashton raised the problem of technological decoupling from China for U.S. exporters. "If our leading edge companies in the semiconductor space are cut off from their largest global market, China, how do they replace that revenue?