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Foreign Policy

Time to Turn the Page

Dec 21, 2020
  • He Weiwen

    Senior Fellow, Chongyang Institute for Financial Studies

U.S. President-elect Joe Biden will enter the White House on Jan. 20. There have been widespread conflicting expectations about what changes will take place in China-U.S. relations, which are now in their worst condition in over 40 years. 

Biden has declared that he will reverse Donald Trump’s unilateralism and return to multilateralism. He has said the United States will return to the Paris agreement and the World Health Organization on the first day of his presidency, and that he will support the World Trade Organization. He will return to trade relations based on a multilateral framework and rules.

Changes in the U.S. approach to trade will logically lead to adjustments in its tariffs — which violate WTO rules — along with other U.S. trade restrictions imposed on China by Trump. In this context, there is a good chance of detente between the two countries.

Joe Biden has called China a major competitor of the U.S, not its largest rival. He has also expressed the possibility for cooperation, and synergy will lead to a matrix of competition and cooperation, which is fundamentally different from the current Cold War-style and decoupling policy in Washington.

Based on all these factors, it might be expected that China and U.S. will rehabilitate trade relations and resume dialogue on all major issues. However, Biden is firmly holding to a position of maintaining American global hegemony and checking what the U.S. views as a China threat. He will likely continue to be hawkish on China.

Biden has said he is in no hurry to take action on U.S.-China trade issues. Instead, he will undertake a thorough review that includes both the tariffs and the phase one agreement, and then discuss the issue with allies, especially in Europe. Meanwhile, China is believed to be reviewing trade issues and policy choices as well.

Any recalibration of bilateral trade relations, while guided by an overall strategy orientation and influenced by domestic considerations, should be based on a practical hindsight assessment of the trade tensions over the past four years. The trade war launched by the Trump administration — highlighted by 7.5 to 25 percent additional tariffs on $ 370 billion of Chinese exports to the U.S., a ban on Huawei and semiconductor chips and a lengthened entity list — with the ultimate goal of de-coupling with China, has proved to be of little use.

According to China Customs, Chinese exports to the U.S. over the first 11 months of 2020 hit $405.83 billion, up 5.7 percent from a year ago, much faster than Chinese global export growth, which was up 2.5 percent. Interestingly, the growth rate matched Chinese exports to the EU (up 5.7 percent) and ASEAN (up 5.8 percent), even though neither has placed additional tariffs on Chinese goods.

This shows that the U.S. tariffs have not made a difference. Even more convincing is that Chinese exports to the U.S. picked up remarkably since July, with the monthly average July-November volume hitting $46 billion, 16 percent higher than the monthly average of $39.9 billion in same period of 2018, which was a historical high. In November this year alone, Chinese exports to the U.S. soared by a startling 46 percent year-on-year to $51.9 billion, 30.1 percent higher than the record monthly average high in 2018. This tempo is expected to continue into the first half of 2021, showing the advantages of Made in China — largely the result of its highly evolved supply chain, which is unique in the world.

The high added tariffs, while unable to stop Chinese goods from flowing, have shown more disadvantages for American importers, distributors, downstream producers and households, all of which pay the tariffs and the subsequent additional costs through higher prices.

This is especially harmful during the current economic recession. In September, more than 3,500 American companies — including Tesla, Ford, Volvo, Cisco, Target, Home Depot, Walgreens, and many more — sued the U.S. government in the U.S. Court of International Trade, saying the additional tariffs were illegal and demanding compensation with interest. Earlier this year, a WTO panel found that the U.S. tariffs on Chinese goods violated GATT rules.

The Wall Street Journal reported that the Conference Board, representing some 200 CEOs of American largest businesses, had appealed to Biden to call off the tariffs and repair trade relations with China.

Trump’s semiconductor chip ban on Huawei has also aroused strong concerns from Qualcomm, Intel and other American semiconductor giants, as China accounts for a large share of their global sales and the loss of China market threatens their survival.

The U.S. decoupling policy has brought the opposite of what Trump expected. U.S. businesses set up 860 new enterprises in China from January to July, with more than $200 billion of U.S. capital moving into the Chinese market. Paradoxically, the decoupling policy has lifted China to become the largest U.S. trading partner for the first time in history, overtaking Canada in the first three quarters of this year.

November’s successful conclusion of the RCEP pact will strengthen China’s position as the nexus of the global supply chain. As the world’s largest free trade zone, the RCEP accounts for 30 percent of the world’s population, GDP and exports. Fourteen RCEP members account for 31.7 percent of total China global trade, more than the U.S. and the EU combined. By contrast, the U.S. share of global trade with China fell 12.2 percent during the first three quarters of 2020, 2 percentage points down from three years ago, while that of ASEAN gained 2.3 percentage points, easily filling the void left by the U.S. The EU share also gained by 0.8 percentage points during this period. 

The facts prove that the Trump administration is losing its trade war with China, though China has also suffered losses.

Based on the data, it will be in the interest of both countries to turn the page and resume trade and investment cooperation. It will also be desirable for them to start multilateral cooperation as early as possible, including joint efforts in fighting COVID-19, development of vaccines and implementing the Paris accord on climate change.

In bilateral areas, early dialogue is also desirable. There are numerous differences between China and the U.S. that call for an effective dialogue mechanism for solution or management. Think tanks and business communities in both countries could play a positive role in that direction, helping to turn the page and strive for the common good of our two great peoples.

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