hen President Joe Biden settles into the Oval Office and his attention eventually turns to China, the most immediate issues on his desk will be a jumbled and confusing pile of Trump administration executive actions.
In just a few months, the Trump administration announced restrictions on business with some of China’s biggest technology companies: telecom equipment maker Huawei, major semiconductor manufacturer Semiconductor Manufacturing International Corporation (SMIC), leading commercial drone maker DJI, powerhouse payment apps Alipay and WeChat Pay, and social media stalwarts TikTok and WeChat. Then there’s the delisting and pending divestment in certain Chinese securities and the blacklisting of hundreds of Chinese entities believed to have connections to the Chinese military, the internment of Uyghurs in Xinjiang, island building in the South China Sea, or the crackdown on democracy in Hong Kong.
The best thing for President Biden to do with all this, at least for a while, is nothing. The same approach should apply to whether he should continue tariffs on $370 billion in Chinese exports. In doing so, his team gains vital time to determine not just what should be maintained and what should be scrapped, but in finding where the leverage lies. Biden must consider Trump’s actions against China as a toolbox to employ once serious talks with Beijing begin. China already knows how to employ every sliver of leverage it possesses; the U.S. can no longer let goodwill or good intentions cloud relations with Beijing, whose talk of win-win collaboration is forged in a zero-sum mindset.
Once President Biden focuses his attention to the wider international system, he should ponder how the American position vis-a-vis China in global trade has dramatically eroded in just four years.
In its last year, the Obama administration reached agreement with 11 countries to conclude the Trans Pacific Partnership (TPP). This 12-nation bloc was to be the world’s largest free trade deal, covering 40 percent of global GDP. TPP was also viewed as an important step in global trade reform, incorporating modern trade language regarding cross-border investment, intellectual property protection, global supply chains and, most importantly for China, the separate treatment of private enterprise and state-owned enterprises. China was not privy to the agreement; the hope was that being on the outside of TPP would incentivize China’s willingness to reform. That certainly was the view of reformers in Beijing who quietly monitored every detail of the TPP negotiations. This all came to nothing when President Trump pulled the U.S. out of TPP on his first day in office.
An even larger deal with the European Union sought by Obama, the Transatlantic Trade and Investment Partnership (TTIP), was dormant once his administration left office. Discussions withered as countries and industries focused on their self-interest instead of the bigger picture. Nonetheless, with TPP and TTIP, the Obama-Biden administration focused on creating gargantuan trade blocs which excluded China, but left the door open should Beijing prove willing to reform and adhere to modern trade standards. The larger endgame was to update the WTO’s antiquated trade rules on the model of TPP and TTIP. TTIP, however, was declared dead after President Trump initiated trade conflicts with the EU. In April 2019, the European Commission declared TTIP negotiations were “obsolete and no longer relevant.”
While the U.S. receded from its position as a global trade architect under Trump, China built new trading blocs to exclude the U.S. in Asia and Europe.
After a vigorous push from China, the Regional Comprehensive Economic Pact (RCEP) was finalized in November 2020. Parties to the agreement include China, Australia, Japan, New Zealand, South Korea and 10 ASEAN nations, accounting for some 30 percent of global population and GDP. While much less ambitious than TPP in addressing structural trade issues, RCEP will eliminate some 90 percent of tariffs over 20 years. RCEP will also increase trade between China, Japan and South Korea, strengthen regional integration and bolster trans-Asia supply chains.
Six weeks later, China countered Obama’s lifeless TTIP with the China-EU Comprehensive Agreement on Investment (CAI). After seven years of negotiations, the CAI came after a full court press from Chinese negotiators and personal phone calls from President Xi Jinping to European leaders. Xi was determined to sign the CAI to ward off a U.S. and EU rapprochement against China under President Biden. Closing the CAI negotiations was also a key objective of Chancellor Angela Merkel’s final policy achievements before stepping down.
The CAI will require ratification by the EU Council and the European Parliament. There will be enormous pressure from the business community to do so, as the agreement goes significantly beyond the market openings and protections outlined in the U.S.-China Phase One trade pact.
While the deal is being finalized, what is available indicates that manufacturers of automobiles, chemicals, and other basic materials—which make up 50% of total EU investment in China—may be the biggest winners. It also points to openings for cloud services, private hospitals, financial and construction services, making it easier for EU companies to acquire Chinese firms and establish wholly-owned companies in new sectors.
The CAI also outlines systemic changes by Beijing that American negotiators sought in Phase One talks, but failed to obtain. This includes pledges on subsidy transparency, SOE adherence to market principles and inching toward adopting International Labor Organization standards, which would allow collective bargaining and ban forced labor. There is deep skepticism on any of this happening: critics of the CAI say the language is a political fig leaf for EU negotiators who needed it to finalize the agreement.
Faced with having to play catch up to Beijing on trade, there are three steps President Biden can take to level set. Step one: listen. Administration officials, and Biden himself, must first reach out to U.S. allies in Europe and Asia to understand their views of China and seek their input in shaping future U.S.-China policy. As President Biden himself told New York Times columnist Tom Friedman: “The best China strategy, I think, is one which gets every one of our—or at least what used to be our—allies on the same page.”
The second step would be to engage Beijing in rejigging the Phase One deal to align with Biden’s goal of shaping U.S. foreign policy to support American jobs and business opportunities at home. Armed with the leverage toolbox created by Trump’s tariffs and executive orders, Biden can focus especially on Beijing’s promise to increase Chinese purchases of U.S. goods and services by $200 billion compared to 2017 levels, a commitment China is significantly behind on achieving.
If increased mercantilism is an unsustainable long-term approach, leveraging the mercantilism at hand would be smart policy. A thorough study of what China consumes and what America produces, to revamp Chinese purchase lists in favor of American jobs, would be a step in the right direction. In the words of Larry Summers, American financial services access in foreign countries doesn’t create U.S. jobs.
Finally, the U.S. must invest in competing with China. Trump’s focus on confrontation and containment shifted the conversation to highlight the real threats posed by China, but the only appropriate policy action is to invest in ourselves and compete.
During the campaign, Biden proposed spending $300 billion to expand S&T education, R&D and working with universities and companies to invest in the same technologies China is pursuing through Made in China 2025 and its web of industrial policies. Biden is in alignment with senior Republicans and Democrats who introduced a variety of ambitious bills in the last Congress to invest billions in leading technologies and shape new U.S. industrial policies. In the wake of the Trump-inspired insurrection at the U.S. Capitol, political alignment may be matched by a greater willingness to cooperate and compromise with Biden, at the very least when dealing with China.
a global affairs media network
First 100 Days: The Upended U.S.-China Trade Landscape
Photo by Jerome Monta via Unsplash.
January 21, 2021
W
hen President Joe Biden settles into the Oval Office and his attention eventually turns to China, the most immediate issues on his desk will be a jumbled and confusing pile of Trump administration executive actions.
In just a few months, the Trump administration announced restrictions on business with some of China’s biggest technology companies: telecom equipment maker Huawei, major semiconductor manufacturer Semiconductor Manufacturing International Corporation (SMIC), leading commercial drone maker DJI, powerhouse payment apps Alipay and WeChat Pay, and social media stalwarts TikTok and WeChat. Then there’s the delisting and pending divestment in certain Chinese securities and the blacklisting of hundreds of Chinese entities believed to have connections to the Chinese military, the internment of Uyghurs in Xinjiang, island building in the South China Sea, or the crackdown on democracy in Hong Kong.
The best thing for President Biden to do with all this, at least for a while, is nothing. The same approach should apply to whether he should continue tariffs on $370 billion in Chinese exports. In doing so, his team gains vital time to determine not just what should be maintained and what should be scrapped, but in finding where the leverage lies. Biden must consider Trump’s actions against China as a toolbox to employ once serious talks with Beijing begin. China already knows how to employ every sliver of leverage it possesses; the U.S. can no longer let goodwill or good intentions cloud relations with Beijing, whose talk of win-win collaboration is forged in a zero-sum mindset.
Once President Biden focuses his attention to the wider international system, he should ponder how the American position vis-a-vis China in global trade has dramatically eroded in just four years.
In its last year, the Obama administration reached agreement with 11 countries to conclude the Trans Pacific Partnership (TPP). This 12-nation bloc was to be the world’s largest free trade deal, covering 40 percent of global GDP. TPP was also viewed as an important step in global trade reform, incorporating modern trade language regarding cross-border investment, intellectual property protection, global supply chains and, most importantly for China, the separate treatment of private enterprise and state-owned enterprises. China was not privy to the agreement; the hope was that being on the outside of TPP would incentivize China’s willingness to reform. That certainly was the view of reformers in Beijing who quietly monitored every detail of the TPP negotiations. This all came to nothing when President Trump pulled the U.S. out of TPP on his first day in office.
An even larger deal with the European Union sought by Obama, the Transatlantic Trade and Investment Partnership (TTIP), was dormant once his administration left office. Discussions withered as countries and industries focused on their self-interest instead of the bigger picture. Nonetheless, with TPP and TTIP, the Obama-Biden administration focused on creating gargantuan trade blocs which excluded China, but left the door open should Beijing prove willing to reform and adhere to modern trade standards. The larger endgame was to update the WTO’s antiquated trade rules on the model of TPP and TTIP. TTIP, however, was declared dead after President Trump initiated trade conflicts with the EU. In April 2019, the European Commission declared TTIP negotiations were “obsolete and no longer relevant.”
While the U.S. receded from its position as a global trade architect under Trump, China built new trading blocs to exclude the U.S. in Asia and Europe.
After a vigorous push from China, the Regional Comprehensive Economic Pact (RCEP) was finalized in November 2020. Parties to the agreement include China, Australia, Japan, New Zealand, South Korea and 10 ASEAN nations, accounting for some 30 percent of global population and GDP. While much less ambitious than TPP in addressing structural trade issues, RCEP will eliminate some 90 percent of tariffs over 20 years. RCEP will also increase trade between China, Japan and South Korea, strengthen regional integration and bolster trans-Asia supply chains.
Six weeks later, China countered Obama’s lifeless TTIP with the China-EU Comprehensive Agreement on Investment (CAI). After seven years of negotiations, the CAI came after a full court press from Chinese negotiators and personal phone calls from President Xi Jinping to European leaders. Xi was determined to sign the CAI to ward off a U.S. and EU rapprochement against China under President Biden. Closing the CAI negotiations was also a key objective of Chancellor Angela Merkel’s final policy achievements before stepping down.
The CAI will require ratification by the EU Council and the European Parliament. There will be enormous pressure from the business community to do so, as the agreement goes significantly beyond the market openings and protections outlined in the U.S.-China Phase One trade pact.
While the deal is being finalized, what is available indicates that manufacturers of automobiles, chemicals, and other basic materials—which make up 50% of total EU investment in China—may be the biggest winners. It also points to openings for cloud services, private hospitals, financial and construction services, making it easier for EU companies to acquire Chinese firms and establish wholly-owned companies in new sectors.
The CAI also outlines systemic changes by Beijing that American negotiators sought in Phase One talks, but failed to obtain. This includes pledges on subsidy transparency, SOE adherence to market principles and inching toward adopting International Labor Organization standards, which would allow collective bargaining and ban forced labor. There is deep skepticism on any of this happening: critics of the CAI say the language is a political fig leaf for EU negotiators who needed it to finalize the agreement.
Faced with having to play catch up to Beijing on trade, there are three steps President Biden can take to level set. Step one: listen. Administration officials, and Biden himself, must first reach out to U.S. allies in Europe and Asia to understand their views of China and seek their input in shaping future U.S.-China policy. As President Biden himself told New York Times columnist Tom Friedman: “The best China strategy, I think, is one which gets every one of our—or at least what used to be our—allies on the same page.”
The second step would be to engage Beijing in rejigging the Phase One deal to align with Biden’s goal of shaping U.S. foreign policy to support American jobs and business opportunities at home. Armed with the leverage toolbox created by Trump’s tariffs and executive orders, Biden can focus especially on Beijing’s promise to increase Chinese purchases of U.S. goods and services by $200 billion compared to 2017 levels, a commitment China is significantly behind on achieving.
If increased mercantilism is an unsustainable long-term approach, leveraging the mercantilism at hand would be smart policy. A thorough study of what China consumes and what America produces, to revamp Chinese purchase lists in favor of American jobs, would be a step in the right direction. In the words of Larry Summers, American financial services access in foreign countries doesn’t create U.S. jobs.
Finally, the U.S. must invest in competing with China. Trump’s focus on confrontation and containment shifted the conversation to highlight the real threats posed by China, but the only appropriate policy action is to invest in ourselves and compete.
During the campaign, Biden proposed spending $300 billion to expand S&T education, R&D and working with universities and companies to invest in the same technologies China is pursuing through Made in China 2025 and its web of industrial policies. Biden is in alignment with senior Republicans and Democrats who introduced a variety of ambitious bills in the last Congress to invest billions in leading technologies and shape new U.S. industrial policies. In the wake of the Trump-inspired insurrection at the U.S. Capitol, political alignment may be matched by a greater willingness to cooperate and compromise with Biden, at the very least when dealing with China.
