It's a well-known fact in the often-tumultuous world of international trade that what happens between the two largest economies, the U.S. and China, has a ripple affect around the globe. To calm the waters, metaphorically speaking only of course, on Monday November 15th in Washington, D.C., President Biden met virtually with President Xi Jinping of the People's Republic of China (PRC). In a nutshell, after four hours of well-choreographed and non-controversial conversation, they both agreed that "Our responsibility as leaders of China and the United States is to ensure that the competition between our countries does not veer into conflict, whether intended or unintended," the U.S. President said. "Just simple, straightforward competition." (Excluding nuclear capable hypersonic space weapons) There was however no specific talk of the rather ongoing volatile trade relationship, or the weekly escalation in military activity in the South Pacific, which is obviously, and eventually, going to affect global trade, and not in a good way. These issues were the huge elephants in the room that were not fed even a few obligatory peanuts from the gallery of high-level officials on the Chinese or U.S. side of the virtual conference table. Quite possibly, this was discussed in advance as to avoid another ill-fated gathering like the one that took place in Alaska back in March, which was deemed as rather unproductive and borderline confrontational.
In my humble opinion, I think there really needed to be at least some semi-deep discussion about the potential de-escalation in military activity in the S. China Sea, which otherwise left unchecked is, just like the headline says, a really bad accident waiting to happen. More to discuss there, but first, all involved must clearly recognize, only slightly less important as the sun shining on the planet every day, is this vitally important region of the world, which is essential to the free flow of a very high volume of international trade. From a global perspective, at stake is a whopping 5.3 trillion USD trade passing through the South China Sea annually representing more than 60% of global maritime trade, which is critical for not just China and the U.S., but also Taiwan, Japan, South Korea, Vietnam, the Philippines, Malaysia, and Brunei, all of whom rely on the Strait of Malacca, which connects the South China Sea with the Pacific Ocean and the Indian Ocean. Obviously, the single largest user of this global trade passage is China, with over 60 percent of its trade in value traveling by sea, all tied directly with the South China Sea. Our interests, (the U.S.) are also closely tied to the continued free flow of trade in this part of the world inclusive of what comes to our ports via the world's second largest economy. At the time of this writing, December 3rd of 2021, a good estimate would be that we, the U.S., are going to be concluding year end business at around $625 billion+ in total trade with China, imports and exports combined, just to mark economically how important the passage is to our relationship.
However, currently over this sacred body of water, the U.S. and China are carrying out dozens of reconnaissance flights each month, chest thumping, with the focus on Taiwan. The Beijing-based South China Sea Probing Initiative said the U.S. military conducted 52 reconnaissance flights over the South China Sea in October 2021 alone. This of course doesn't bode well for making good on further discussions regarding just "getting along." If healthy competition is the buildup of military prowess, and not the economies, we all stand to lose. The accident I mentioned that was waiting to happen, well, it wasn't so much a prediction of N. Korea miss-firing a missile into the northern, or even southern, tip of Japan, (good chance there eventually) as much as it is, how the heck did a U.S. submarine manage to slam into an underwater mountain. What? Yes, all top tier officials onboard the sub have been fired by the Navy, but the question remains, "How the heck did that happen?" Formally, the USS Connecticut, a Seawolf-class nuclear powered $3 billion piece of American military hardware that's built with state-of-the-art highly sophisticated technology slammed into the side of an undersea mountain in the Pacific on October 2nd. A total embarrassment to the U.S. Navy of course, but there is much more that hinges on this accident than simply getting the damage to the sub fixed and firing those in charge. This naval blunder obviously brings to light just how easily, at any given moment, any of the expensive military toys in play in this incredibly important region of the world can malfunction, technology aside, as there are still humans involved to some degree of operation. To say the least, there is more than an urgent need now for discussions on how the reaction to the first major (inevitable and yet pending) accident should be handled, inclusive of all countries involved, and not just U.S. and China officials. Accident-free flow of vessels through the S. China sea is the bread and butter for a very large portion of world trade, and this region should therefore be officially blessed with restrictions placed on all non-trade related vessels that could interfere with trade navigation. That being said, fat chance, and let's move on with reality concerning the U.S. and China relations.
As previously mentioned, $625 billion+ in total trade with China is a significant amount of business to be placed in any major jeopardy, but of course, we have our major disagreements. It begs the question, who is most influential, and ultimately in charge of this business and keeping it intact? U.S. Trade Representative Katherine Tai recently outlined the results of the administration's China trade audit. As predicted by many scholars of trade, as well as high school dropouts, there was a focus on the status quo rather than introducing a new blueprint for easing tensions and creating a viable path for fair and equitable competition as President Biden mentioned in the conference with Xi. USTR Katherine Tai, once again, indicated that the Biden administration intends to keep the trade policies put in place via the Trump administration. (Insert yawn here) It's amazing to me that neither President Biden nor Xi Jinping discussed this in the virtual meeting. Therefore, heading into 2022, the Section 301 tariffs covering more than two-thirds of Chinese exports to the United States will remain in place, although there has been a revised process for excluding certain goods from the tariffs. Among the exceptions, on November 9th, 2021 the USTR announced the extension of the 99 COVID-related exclusions. The first group of 18 HTS subheadings had the expiration date extended until November 30th, 2021. The second group of 81 HTS subheadings, which was set to expire on November 14th, 2021, has been extended until May 31, 2022. The comment period for granting further exclusions just ended, so that remains to be announced, and the sooner the better.
Also in play, but not much of a mention, the "Phase One" U.S.-China trade deal, which was negotiated by the Trump administration. At this time, China has done a fairly decent job of meeting a good portion of the U.S. export goals set on agricultural products but has also failed miserably with other product sectors outlined in the agreement. If you are so inclined, to be specific, the Phase One trade agreement that was signed in January 2020 included very defined targets for Chinese purchases of agriculture, manufactured goods, energy, and service exports from the United States. Yes, simple logic dictates that we should agree that the pandemic is the main culprit for the lack of fulfillment, as the economies have since opened back up, but are now faced with overall supply chain shortcomings. On the receiving end, two of the main U.S. ports which handle the bulk of China trade, Long Beach and Los Angeles, are still clogged with a delay of roughly 8-10 days being the norm from entering port boundaries to berth.
Tai did emphasize a plan (not detailed yet) to rebalance the U.S.-China economic relationship, which is going to be a very bumpy road given the current tensions" with Beijing. Inserting a necessary redundancy and another yawn here, the future of trade relations with China looks to be status quo heading into 2022, and the first sign of significant change, that many of us within the international trade arena are looking for, including Xi Jinping, is the lifting of the Section 301 tariffs on Chinese goods. Even Treasury Secretary Janet Yellen, recently acknowledged that removing Section 301 tariffs on Chinese goods would make some difference with the current U.S. inflation. Pressure is building from the inside as well now to do something soon as overall soaring prices are making the headlines daily, like this one: Gas prices climb to just under $5/gallon in California! President Biden asked the FTC to investigate possible illegal conduct concerning countries and entities abroad like OPEC. Fifty million barrels of strategic petroleum reserves will now be released for emergency consumption. China, Japan, India, South Korea, and the United Kingdom have confirmed that they would also participate in the coordinated release of their petroleum reserves.
In the meantime, as the economy and pandemic recovery are in focus, plans to end the tariff war, which would be a great assist, are simply stuck in the proverbial "limbo." I can't help but think, if tariffs on Chinese goods were completely removed, or even somewhat appeased it would in fact offer an open door, an olive branch if you will, into deeper meaningful negotiations with the Chinese delegation regarding several additional elements of confrontation, including intellectual property theft, government subsidies, and the overall lopsided exchange in trade in China's favor. Circling any wagons of trade (ships in this case) regarding hope in fair and equitable trade, is the continued buildup of military might in the S. China Sea, and the two superpowers on edge with the fate of Taiwan hanging in the balance. Something has to "give", and maybe, just maybe, the Biden Administration will take the first step, in a positive direction. The high road if you will now that discussions are back to being somewhat copasetic. Let's head into 2022 with a new mantra from the USTR," Good trade vibes everyone." Let's start laying the foundation now. After all, tis the season to be jolly, so it's time to spread some much-needed semi-post-pandemic holiday cheer. (Insert holiday parade visuals here with colorful floral floats made of world trade amicable hand shaking scenarios and sounds of the marching elf band, wait seven seconds, then insert abrupt and loud record scratch, and the screen goes dark) In other words, a hard stop on a yearend wish, and we're back once again to reality even in the middle of writing this article, as China's Foreign Ministry has just lashed out at President Joe Biden after he mentioned that the U.S. is contemplating, and about to announce, a diplomatic boycott of the Beijing winter Olympics over the ruling communist regime's poor human rights record. "It's something we're considering," Biden confirmed when pressed on the issue during a meeting with Canadian Prime Minister Justin Trudeau in the Oval Office on Thursday 11/18. The cherry on top is that we just sent another warship, the Arleigh Burke-class guided-missile destroyer Milius, through the strait of Taiwan on Tuesday 11/23. So much for the holiday cheer, and with China now in an energy crisis Xi Jinping just ordered all kids under 10 years old to do really bad things leading up to Christmas so Santa would put coal in their stockings. They can trade the coal for gifts from a government APP, or gift cards for aliexpress.com once documented in the exchange at various locations throughout the country. The coal of course will be used to keep electricity up and functioning through the holiday, as China was coming up short on a much-needed fuel source. Climate change can wait, bring on the angry Santa.
I would like to digress just a little more and close with a deep seasonal thought that is so very relevant at this time in history: Christmas is not really a public holiday in China, but more like a Hallmark holiday in the U.S., although you will see a very noticeable western influence, not so much in religious celebration, but rather a more commercial representation via an exchange of gifts, and of course those gifts are accompanied by genuinely nice thoughts. (A lot of drinking too) Among this softer side of the celebration, is a tradition in China to eat an apple on Christmas eve. Why? Because, this is not just any ordinary apple, it's an apple that is symbolic of peace, love, and harmony. It's a common Chinese Christmas tradition among young people to send cellophane-wrapped apples as gifts to their friends imprinted with messages of 'love', 'peace' and 'Merry Christmas'. Our entire planet desperately needs this sentiment right now. It reminds me of the decade's old version of the internationally renowned Coca-Cola promotion "I'd love to teach the world to sing...in perfect harmony." In the new commercial, instead of a montage of people from around the globe drinking a coke, they are shown to be biting a nice juicy red apple in front of various Christmas backdrops from around the world...with the date 12/25/2021 and the flags of various countries scrolled on the bottom of the screen. The lyrics, but not the melody of the song, would be changed to, "We need to teach the world a thing, about peace and harmony."
Somewhat annoying and wishful thinking Pollyanna-Bob aside, everyone, I implore you, what do we have to lose? Eat an apple on Christmas eve. Really, it's time, just look at the current world news. It's borderline apocalyptic. There can be no excuses, just eat the damn apple!
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