Why a Biden presidency won’t end the U.S.-China trade war

November 9, 2020, 6:40 AM UTC

After days of nail-biting vote tallying and two false declarations of victory by President Donald Trump, during which he questioned the legitimacy of the democratic process, Joe Biden has emerged as the next President of the United States. But while the Trump era is coming to an end, the U.S.-China trade war that was a hallmark of the Trump presidency is likely to continue.

During his time in office, which officially ends in January, Trump imposed tariffs on $370 billion worth of Chinese imports, beginning in mid-2018. Beijing retaliated in kind, putting tariffs on close to $200 billion of U.S. imports.

In January this year, the two sides reached a truce and signed the Phase 1 trade deal, which froze tariff hikes and committed China to making $200 billion in additional purchases from the U.S. by 2021.

China is currently behind schedule on that commitment but, in the later months of the year, Beijing tried to boost its imports of American goods to make up for lost ground. Bo Zhuang, chief China economist at TS Lombard, suggested Beijing’s halfhearted push to uphold its end of the deal showed the government was just stalling until after the election.

But now that the election is over and Biden is destined for the White House, it’s unlikely he’ll bring the trade war to a quick end since the U.S. grievances underlying the conflict remain unresolved.

Keep the good

Despite deeming Chinese President Xi Jinping a “thug” and calling out Beijing’s incarceration of millions of Uighurs in Xinjiang during the Democratic debate in February, Biden’s rhetoric toward China has been markedly more constrained than Trump’s.

Biden’s relative restraint allowed the Trump campaign to label the now President-elect as soft on China. But analysts don’t expect—or even advise—Biden to simply walk back anti-China policies put in place by Trump.

“A Biden administration would need to redefine China strategy on many levels, including laying out a more coherent approach to decoupling—or prudent disengagement—that U.S. businesses and allies understand,” say analysts at independent consultancy Rhodium Group. “It should pick the elements of Trump’s approach that worked, jettison those that have not, and reframe the U.S.-China narrative.”

Tech transfers and tariffs

It’s easy to forget that Trump’s trade war was largely instigated as a response to China’s ambitious “Made in China 2025” policy, which has set aside billions of dollars in funding to make China a leader in advanced technology, displacing the U.S. One key component of that strategy is the requirement that foreign firms transfer tech and know-how to local partners in China in exchange for access to the lucrative Chinese market.

In the early days of the trade war, the Trump administration’s trade negotiators pushed China to abandon that policy of “forced tech transfers.” But as China proved unyielding, focus shifted to securing a boost in U.S. exports.

Trump’s tactic of imposing tariffs to batter Beijing into abandoning the policy isn’t widely endorsed by economists. U.S. companies have largely footed the costs of tariffs, shelling out roughly $46 billion by the end of 2019. The tariffs’ hit to the general U.S. economy is steeper: In 2019, Bloomberg Economics estimated the trade war would shave $316 billion off the U.S. economy by the end of 2020.

Still, Kurt Campbell, an adviser to the Biden campaign, told the Wall Street Journal that the Democratic Party largely believes Trump was right to call out China’s “predatory practices.”

Biden has criticized Trump’s application of tariffs as “reckless” and says that the Phase 1 trade deal delivers “precious little” for the U.S. But the Biden campaign has claimed it won’t just roll back those tariffs. In May, the now President-elect told the United Steelworkers union that he would continue to use tariffs against China “when they are needed.”

Biden claims that unlike Trump he has “a strategy…to use those tariffs to win, not just to fake toughness.” For Biden, winning likely means mitigating the effects of China’s hefty subsidies for domestic manufacturers, which enable Chinese companies to compete on price, and trade theft. He told Bloomberg those issues were “at the heart” of the trade war.

Buy American

To counter China’s advance, Biden has proposed a $300 billion “Innovate in America” fund to bolster research and development in the U.S. The innovation pot is separate from a $400 billion “Buy American” fund Biden has proposed to support the purchase of domestic goods.

Taken together, the two policies seek to keep onshore the manufacturing of high-value and critical supplies—such as medical equipment, 5G telecom hardware, and electric vehicles—so that the U.S. isn’t “dependent on China.

Not everyone thinks that will work. Daniel Rosen, a founding partner at Rhodium Group, wrote in August that the experience of both China and the U.S. shows huge federal funding can be a “counterproductive” means to spur innovation.

“Just because we now wish we had cultivated an indigenous 5G telecommunications industry doesn’t mean that interventions would have allowed us to do so,” Rosen writes. “Washington must take a more active role in enabling innovation, but this must be targeted and well considered.”

The domestic funding component of Biden’s trade policy will also be subject to congressional approval, but it’s unclear whether his plans will pass a Senate that could be Republican-controlled.

There’s still a lot Biden can do on his own. In fact, Trump’s trade war tariffs were enacted by executive order. If Biden can’t garner congressional support for his plans to bolster the domestic industry, he might continue Trump’s more protectionist policies. Or, without domestic alternatives available, Biden may be forced to grant China more concessions.

But even with so much left uncertain for the moment, from China’s point of view, a Biden presidency should at least be a little more predictable than the past four years of President Trump.

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