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Biden’s Foreign Economic Policy and US-China Relations

Dec 28, 2020

Following the elections and a round of congratulatory phone calls with foreign heads of government, president-elect Joe Biden has signalled that “America is back and at the head of the table”. The Democratic president appears like he would ditch his predecessor’s aggressive unilateralism −one that targeted friends and foes alike in its trade offensive− and wear the mantle of multilateralism to solve global challenges. The priority will be COVID-19 and its economic fallout, along with climate change and racial injustice, but Biden’s early picks in his foreign policy and security team suggest that China matters will be prominent in his administration’s agenda, especially its economic component.

Biden’s approach will be predicated on liberal internationalism, a U.S. foreign policy tradition that is well-rooted in the centrist factions of the Democratic and Republican parties. In concrete terms, there will be more emphasis on democratic values and multilateralism, with the U.S. playing an active role in international dialogue to tackle common concerns. In the first few days of the administration, for instance, the U.S. will rejoin the World Health Organization and the Paris Agreement, and play a more engaged role in the G-20 and G-7 summits. The G-20, for instance, will provide the key opportunity for major economies to coordinate international economic policies, with an eye on debt restructuring for newly industrialized economies and developing countries under financial duress. In all of the above, a modicum of cooperation with China must be exercised.

All of the above developments will be in line with Biden’s stated priorities, and are low hanging diplomatic fruits. There’s no need for ratification to re-enter the Paris Agreement and the WHO. Playing to the centre will allow Biden to secure much needed support from Republican senators and congressmen on his broader policy agenda, starting with the U.S. Senate’s confirmation of the incoming administration’s cabinet picks. This also means that the new administration will be unable to deviate too much from the Trump administration’s drastic rerouting of Washington’s China policy; conservative voices are already lambasting Biden’s team as “polite and orderly caretakers of American decline.” Biden’s pick of Antony Blinken as Secretary of State, Jake Sullivan as National Security Advisor −who is not subject to confirmation from the Senate− and the rumoured appointment of China hawks in sub-cabinet level positions will certainly neutralize this criticism.

The sentiment on China among Biden’s advisers is fairly critical, but perhaps hint towards what will be the end goal: nominally, Washington’s competitive coexistence with Beijing. End goals and methods will change, but some pillars of Biden’s China policy are clear. In a telling interview, Biden has stated that he will pursue “leverage” in dealings with China, and emphasized the challenge of China’s distorted market practices. U.S. leverage will be both domestic and international. On the domestic front, the Biden administration will pursue an ambitious industrial policy and investment in critical infrastructure and new technologies, with a strong emphasis on “Buy American”. Biotech, energy and artificial intelligence will be prime recipients of U.S. state-driven Research and Development efforts. Interestingly, Biden will not remove Section 301 tariffs aimed at China and will instead review the Phase 1 trade deal while consulting with Asian and European allies. Early indications suggest that potential coordination with allies, such as with the European Union, aim to level the playing field in the eyes of the U.S. However, there are also signs of the U.S. attempting to leverage that coordination in order to confront China’s economic reprisals against U.S. allies. Key players in the Biden administration have stated the need to coalesce friendly democracies in that context so as to set the international rules, from digital and data governance to coordination with regulatory bodies, not unlike the State Department’s quest to neutralize China’s nominees to head influential UN agencies.

The traditional avenue for such regulation would be the World Trade Organization, but the institution will continue its impasse because of its consensus-based decision-making process. Calls for open plurilateral agreements to break the standstill are unlikely to move forward in the face of ongoing geopolitical competition between the major players within the WTO –the U.S., China and the EU. Biden’s team is instead hinting at an economic, trade and technological democratic bloc to write the rules and better compete with China, and possibly use that leverage to induce China to scale back the role of the state in its economy. This very same thinking was the basis of the Obama administration’s quest for the TPP and TTIP trade deals with, respectively, Pacific economies and the EU, but we won’t see any of these pursuits gaining new life as Biden confronts a mob of protectionist voices from the Republican Party, which is still largely under the spell of Trumpism, and from the progressive wing of the Democratic Party. At any rate, the evidence presented here suggests that foreign economic policy will be Biden’s priority when dealing with China. 

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