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America’s Strategic Direction on Trade

Jun 22, 2022
  • Zhou Xiaoming

    Former Deputy Permanent Representative of China’s Mission to the UN Office in Geneva

The Biden administration had long seen a need to realign America’s China trade policy. The punitive tariffs that former President Donald Trump imposed on Chinese imports have backfired, with more Chinese goods than ever entering the United States. The implementation of the so-called phase-one trade agreement has not proceeded in the manner Washington had hoped. Further, the Biden administration’s efforts to change China’s economic policy have failed to make headway.

The trade strategy that has emerged from the administration’s policy announcements and actions clearly shows some new directions and approaches. To start with — and contrary to the claim of U.S. Trade Representative Catherine Tai that Biden administration’s trade policy is “worker centered” — U.S. policy regarding trade with China is geared to serving Washington’s geopolitical goals. Trade plays second fiddle to the White House’s strategic objectives, meaning that commercial interests are to be sacrificed when Washington’s geopolitical ambitions call for it. Trade with China is viewed through a geopolitical lens.

Washington perceives China as an existential threat, and it increasingly employs trade as a weapon. For example, the Indo-Pacific Economic Framework was designed to dampen China’s influence — or, as Biden put it, to provide an “alternative to China.”

Against this backdrop, there is little likelihood that the White House would relax, let alone scuttle, its sanctions against China anytime soon. On the contrary, more sanctions are in the offing. In an attempt to destabilize Xinjiang, the Biden administration will soon ban imports from that region. In addition, it is expected the U.S. will place more Chinese companies and individuals on its Entity List for alleged human rights abuses or connections with the Chinese military.

Washington is also likely to take punitive measures against China for its alleged role in the Russia-Ukraine conflict. In this regard, it has warned China of “consequences” if it provides “material support” to Russia. It would follow through with this threat when politically desirable.

 Unsurprisingly, the decision on whether to scrap the tariffs that Trump imposed on Chinese merchandise valued at $360 billion also hinges on geopolitical considerations inside the White House. The Biden administration appears to be open to scaling back the duties. But the lifting would only be partial and highly selective in spite of the enormous harm that the tariffs inflict on American manufacturers and consumers.

While tariffs on some “non-strategic goods” may be cut or scrapped to provide some much-needed relief for surging inflation in the U.S., it is virtually certain that the Biden administration will uphold tariffs on what it considers strategic goods — steel, aluminum and high-tech items — thanks to its obsession with technological decoupling. The Biden White House does not seek a comprehensive economic decoupling with China, which is neither possible nor desirable. But it deems technological decoupling essential to thwart China’s rise.

Second, the Biden administration’s China trade strategy prioritizes shaping the “strategic environment” around Beijing, a clear departure from Trump’s tariff policy. This strategic environment approach calls, first and foremost, for conscripting allies and partners — an important element of the so-called Biden Doctrine. Implicit in this approach is a recognition in Washington of its inability to confront China successfully by itself, as Trump’s experience of going it alone amply demonstrated.

Moreover, at the core of its strategy, the new approach tries to capitalize on the resources of other countries. In so doing, Washington hopes to be able to deal with China from a “position of strength,” to increase its chances of success. Not unlike Trump’s demands on other NATO members to hike their defense budgets, Biden’s approach would enable Washington to have other countries pay for America’s geopolitical goals.

 The reference to allies and partners means, in large measure beefing up alliance networks. In this regard, the Biden administration has made enormous efforts, including the launch of the IPEF and Taiwan Initiative on 21st-Century Trade, the reinvigoration of the Transatlantic Trade and Technology Council and the Quad alliance, which includes the U.S., India, Australia and Japan.

 The Biden administration has also been hard at work to exploit these alliances to counter China in multiple areas. In what many in China regard as a bid to cut off the Chinese economy from the rest of the world, the U.S.  is striving to reshape global supply chains in some critical sectors. For instance, it is working with the European Union, Japan, South Korea and Taiwan to develop a supply chain for semiconductor chips that excludes China. Also, the U.S. is writing global rules for digital trade with other G7 members. Going forward, the Biden administration is looking to strengthen its alliances in areas such as export controls and investment reviews.

Shaping the global environment also entails setting rules for fair trade in the 21st century. In recent years, Washington has found its global competitiveness being eroded by China, so it decided to turn the tables. Time and again it took China to court at the World Trade Organization, only to be told by the world’s top trade body that China’s economic policy and trade practices did not contravene WTO rules. It then determined that WTO rules are outdated and need to be altered to keep up with the times while, paradoxically, deeming it justified to maintain its voting shares at the International Monetary Fund and the World Bank. These enable the U.S. to veto virtually all important decisions, even though its share of global GDP has shrunk to 23 percent from 56 percent in 1945. 

To address the issue at the root, Washington is determined to set rules of the road on trade. It is convinced that, just as it did in the last century, shaping global trade rules will entrench its interests and privileges. In addition, institutionalizing rules that favor Washington would blunt China’s competitive edge and — to quote a Chinese saying — “chisel its feet to suit the shoes.” The U.S. and its Western allies envision rules that would straightjacket the biggest economy in Asia.

For this reason, the U.S. has pushed, in conjunction with the EU and Japan, for WTO rules that they have written primarily targeting China in such areas as industrial subsidies and state-owned enterprises.   The U.S. also intends the IPEF to “set the terms and rules of the road for trade and technology and supply chains for the 21st century,” according to Secretary of State Antony Blinken.

The Biden administration’s new strategy reflects Washington’s burning desire to reshape the global trading system in a way that will preserve America’s superpower status and its influence — a world in which all other countries revolve around the U.S. However, Washington’s dream will only come true at the expense of developing countries and multilateral trade. Its attempts to reshape global supply chains, intended only to bolster its own supply chain security and resilience, requires the dismantling of the current efficient supply chains and replacing them with new ones at enormous cost and considerable time, threatening to fracture the world market. Meanwhile, the high standards that Biden administration wants to introduce in the IPEF would, by raising the bar, make it difficult for other signatories to enter U.S. market, while increasing America’s own competitiveness in other regional economies.

Moreover, the Biden administration excludes tariff reductions as part of the arrangement. All work and no play makes Jack a dull boy. Similarly, wouldn’t a plan consisting of all obligations and no tangible benefits make the IPEF unattractive to other regional economies? 

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