The Trump administration rebuked China for not being tough enough over North Korea’s nuclear program and said the Asian country is backsliding on market-oriented reforms.
The U.S. wants to work with other major economies to come up with a united response to what America sees as China’s foot dragging on economic changes, ranging from reforming state-owned enterprises to curbing the ruling party’s role in the economy, said David Malpass, the Treasury’s undersecretary of international affairs.
The unusually outspoken criticism comes as the U.S. seeks Beijing’s aid in corralling North Korea’s nuclear ambitions. While President Donald Trump has been scaling back his public criticism of China’s trade practices, his administration is heaping pressure on the Asian nation to cut ties with North Korea after Pyongyang’s recent series of ballistic missile tests.
“We are concerned that China’s economic liberalization seems to have slowed or reversed, with the role of the state increasing,” Malpass said at an event in New York in Thursday. “We invite market-oriented economies around the world to work with us to find constructive responses.”
The remarks may raise tensions at a time when the world’s two biggest economies are struggling to find common ground on economic policy. In separate interview with Bloomberg TV, Malpass said talks have stalled between the two countries through their main channel of regular discussions on economic and commercial matters.
At the same time, the tougher U.S. tone will be welcomed by those who are concerned China isn’t living up to the promises it made when it joined the World Trade Organization in 2001.
There’s broad agreement that China’s “path to liberalization has slowed. They are backtracking on some aspects of the financial areas, such as clamping down capital outflows and monitoring investments of corporations and placing more party officials in the nominally private sector,” said Ted Truman, a senior fellow at the Peterson Institute for International Economics in Washington and a former Treasury official.
China should recognize that the U.S. is looking at “two goods at the same time,” in terms of balancing national security concerns with its trade agenda, Malpass said. “China could be doing more and needs to be doing more” to work with the U.S. in curbing the threat from North Korea, he said. “At the same time, we also want to have a trade relationship that works in a more balanced and reciprocal way.”
Adding to strains in the relationship, the U.S. on Thursday joined the European Union in rejecting China’s claim that, under the terms of its accession to the WTO, it should have graduated last year to market-economy status, which would offer greater protection from anti-dumping duties. The Trump administration has been highly critical of the international trading body, calling its dispute-settlement system “deficient.”
“The World Trade Organization has shown an inability to resolve disputes, limit subsidies or draw China into the market status that was envisioned when China joined the WTO,” said Malpass. “As its proportion of the world’s GDP increases, China’s market liberalization is a critical factor over whether global growth will be sustained into the future.”
Malpass called for a fundamental rethink of the multilateral system of global commerce, which he said has exacerbated trade imbalances and undermined U.S. economic growth.
“Now is the opportune time to talk about the rapid increase in globalism,” he said. “I want to make a clear distinction between isolation, which we oppose, and our view that multilateralism has gone substantially too far, to the point where it is hurting U.S. and global growth.”
While there is some evidence that China has slowed the pace of liberalizing its markets, such as state-owned enterprises playing a leading role in the economy, there are more signs of some areas opening up, said David Loevinger, a former China specialist at the U.S. Treasury who now works as an analyst at TCW Group Inc. in Los Angeles. Asset managers can now trade Chinese bonds and other financial assets onshore, he said. China is also opening up foreign direct investment in financial services, according to Loevinger.
“We are hemorrhaging soft power in Asia,” he said. “We are creating a vacuum for China and other powers to take advantage of that—China has other avenues and is working aggressively to expand its influence in Asia.”