At the APEC leaders meeting in Beijing on November 10-11, Presidents Obama and Xi Jinping announced that the United States and China had reached an “understanding” that would allow stalled negotiations to expand the Information Technology Agreement (ITA) to proceed. The two leaders also announced an agreement regarding emissions reductions, pursuant to which the United States would further reduce greenhouse emissions by 26 to 28 percent relative to 2005 levels and China would reach peak emissions around 2030. China also promised to generate at least 20 percent of its energy from alternative sources including solar, wind, hydro, and nuclear power. If implemented successfully, these agreements could have significant implications for the U.S.-China trade relationship.
Details regarding the U.S.-China understanding on the ITA have not been made public, but a fact sheet released by the United States Trade Representative indicates that the scope of the Agreement would cover items such as next generation semiconductors, MRI machines, GPS devices, and video game consoles. The talks have been stalled for approximately one year, after China refused to offer a sufficiently expanded list of goods to be eligible for duty-free treatment. The understanding will allow talks among all 54 participants in Geneva to proceed.
An expanded ITA could offer significant opportunities for global technology firms. According to McKinsey & Company, for example, China accounts for approximately 45 percent of global semiconductor demand, and 90 percent of its consumption is imported. At the same time, however, tariff rates probably are not the chief obstacle to selling IT goods into the Chinese market. The Chinese government considers certain IT industries to be sensitive or strategic, and it has been ramping up efforts to develop home-grown national champions as alternatives to imports.
National security concerns in the wake of the NSA leaks by Edward Snowden are also becoming a formidable obstacle for U.S. technology firms in the Chinese market. Finally, to the extent that Chinese producers of IT goods continue to receive support from the government, they could become a source of unfair competition in foreign markets, as have Chinese producers of steel and alternative energy products.
China’s agreement to cap greenhouse gas emissions by 2030 is significant, and trade in some forms of alternative energy products could get a boost from the agreement on emissions reductions. As part of the agreement, the United States and China aim to “promote trade in green goods,” an area that has been a persistent source of bilateral economic and political tension in recent years.
After receiving massive subsidies pursuant to a strategic government initiative to boost production of alternative energy technology, China’s solar industry went from virtually non-existent to the world’s largest, with the vast majority of production exported in an attempt to dominate the global industry. Chinese imports of solar panels are currently the subject of an unfair trade investigation in the United States for the second time, after a first round of antidumping and countervailing duties was imposed in 2012.