Zhang Jun and Shi Shuo worry that the incoming Biden Administration will continue its predecessor's "mistaken" approach to China

Zhang Jun and Shi Shuo worry that the incoming Biden Administration will continue its predecessor's "mistaken" approach to China

By Zhang Jun and Shi Shuo*

When President-elect Joe Biden is inaugurated next week, he will quickly move to transform most dimensions of US policy. A glaring exception is China. But if Biden maintains outgoing President Donald Trump’s confrontational approach to the world’s second-largest economy, he will come to regret it.

While Biden may be less overtly antagonistic toward China than Trump was, he has echoed many of his predecessor’s complaints about China’s trade practices, accusing the country of “stealing” intellectual property, dumping products in foreign markets, and forcing technology transfers from American companies. And he has indicated that he will not immediately abandon the “phase one” bilateral trade agreement reached last year, or remove the 25% tariffs that now affect about half of China’s exports to the United States.

In Biden’s view, it is best not to make any significant changes to the ongoing approach to China until he conducts a full review of the existing agreement and consults with America’s traditional allies in Asia and Europe, in order to “develop a coherent strategy.” His chosen US Trade Representative, Katherine Tai – an Asian-American trade lawyer (and fluent Mandarin speaker), with extensive experience in China – might play an important role in the review process.

But it should not take a comprehensive examination to see that high tariffs and the phase one agreement are fundamentally incompatible. In the last two years, the proportion of Chinese exports to the US subjected to additional tariffs has soared from a nearly insignificant share to over 70%. And the share of US exports to China subject to tariffs has skyrocketed, from 2% in February 2018 to more than 50% two years later.

Over the same period, the US has implemented 11 rounds of sanctions against Chinese entities. Last month’s addition of 59 Chinese enterprises and individuals to the US Department of Commerce’s list of export-controlled entities brought the total to 350 – the most for any country.

With such high costs and strict limitations on exports, China cannot possibly fulfill its commitment, included in the phase one agreement, to purchase some $200 billion in additional US goods and services in 2020-21. Since January 2020, US exports to China have fallen far short of the deal’s targets. As a result, in November 2020, China had fulfilled just 57% of its annual purchase commitment.

China’s options for accelerating progress are severely limited. The private sector – which accounts for nearly 80% of Chinese demand for US imports – cannot simply be instructed to purchase American goods at such high tariffs. And forcing state-owned enterprises to pick up the slack would create its own problems.

The conclusion is clear: as long as Biden upholds Trump’s confrontational approach, the phase one accord will be fundamentally unworkable, and further progress toward a mutually beneficial trade relationship will be all but impossible. Bilateral trade could even collapse.

But this does not mean that the Biden administration need only remove tariffs. The phase one agreement is also deeply flawed, not least because complying with it would force China to reduce imports from other countries. By giving the US a significant advantage over China’s other trading partners, the agreement may even violate the World Trade Organization’s principle of non-discrimination.

Other countries, therefore, are trying to level the playing field. At the end of 2020, the European Union and China concluded the Comprehensive Agreement on Investment, and all ten of the ASEAN countries signed the Regional Comprehensive Economic Partnership (RCEP), together with China, Japan, South Korea, Australia, and New Zealand.

None of this is in America’s interest. For starters, ASEAN countries – which, collectively, form America’s fourth-largest export market – are likely to shift more trade to their RCEP partners. The fact that the RCEP lacks the labour and environmental standards seen in agreements with Canada, Mexico, and the US will reinforce this shift.

The RCEP is also likely to increase Chinese demand for agricultural and energy exports from Australia and New Zealand. And by indirectly establishing a free-trade zone among China, Japan, and South Korea – the so-called iron triangle – it will consolidate supply chains in Northeast Asia and the West Pacific. This puts the US at a growing strategic disadvantage.

Instead of upholding Trump’s confrontational China policy, Biden should accept China’s central role in the global economy, and pursue a mutually beneficial, non-discriminatory trade agreement. China’s efforts to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – which evolved from the Trans-Pacific Partnership after Trump abandoned it upon taking office four years ago – could provide an important opening here.

The Biden administration promises a fresh start for the US and its relations with the world. To fulfill that promise, he must end his predecessor’s disastrous trade war against China.


Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai-based think tank. Shi Shuo is a PhD candidate in economics at Fudan University’s China Center for Economic Studies and a visiting fellow at CERDI-IDREC, Université Clermont Auvergne. Copyright 2021 Project Syndicate, here with permission.

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23 Comments

Part of this article is propaganda, but some of it makes sense. America needs to rebuild within. A trade war does not really help it. Biden wants a constructive competition with China, and it is the way to go.

What exactly then is China going to bring to the table? That is, will there be any concessions forthcoming to address the significant imbalances that Trump was “on about.” Obviously the USA is hardly lily white in this regard, but will the CCP encourage greater free speech and improve, in meaningful fashion, the humanitarian cause of many of the people of China. Given the recent countermeasures against Australia, reading this article, there is hardly even lip service given to China wanting to achieve balance and consensus amicably, sincerely.

What is China going to bring to the table?

Everything: exports to the US, imports from the US, the US debts owned, interest-free loans that attract Americans like Elon Musk to relocate to China, a continuous military build-up in SCS, a more robust projection of influence in Asia, the supply of covid vaccine to the third world countries and most importantly an economy that will lead the global recovery (as per what OECD says).

It is not about what CCP/China can or will do; it is all about how America competes. America's problems are within, and America needs to rebuild within.

A coordinated approach from the West is the best way. Trump didn't do that.
To apply tariffs is a legitimate way of dealing with China. WTO does not get involved. But it does take a long time to shift production home. And if Biden does away from this then it will end up being a complete failure. It has yet to bear fruit but it would do so in the long term.
The Japanese approach (to incentivise production to come home) is another approach but does require $.
Who knows what happens from here. But if China wages a war, trade will be the first thing which will stop dead.

百年未有之大变局 (The change of world order not seen for the past 100 years),
一带一路 (belt and road initiative),
人类命运共同体 (human kind of a shared future).

This is how China see the future of the world, and what the world should be.

Because of the coming significant change of the world order, the mankind will benefit from having a shared future by linking and working together using the belt and road infrastructures.

Bollocks.

Awwwwww Xing you are a funny man.

Yep if the years weren’t so far apart, a character on which Benny Hill might well have based, enhanced his relative skits.

Mankind will benefit from absolutely nothing if we keep up with the environmental destruction we are currently boots and all into. China has almost zero regard for the natural world, so I am taking your comment with a very small grain of salt

Does China need to look at India? If they did they might see what China was a generation ago - great potential. The world order can change fast - ref comparative power and economies of France / UK / Germany for the last 300 years. If China sees the change of the world order as merely getting ahead of the USA then they lack long term ambition.

If China is so bent on becoming bigger economically than the USA then things become very scary indeed.

That sounds like one of my favourite management quotes - “we work as a team and we do it my way”. Co-Prosperity Sphere also comes to mind.

The reality is that China will surpass the USA as the global economic and political super-power whatever action the USA takes.
China's considerable larger population compared to the US and their continuing economic development and growth - as witnessed over the past 40 years - will soon eclipse the USA. As with past global powers such as the UK - and even France and Spain of past centuries or Germany and Japan in the past fifty years - the prominence of the USA is waning and Trump's trade war was destined to fail in addressing this; actually an isolationist policy will only hasten this trend.
It appears China is also increasingly exerting greater political influence through development of trade and aid. The 2013 Belt Road initiative is an example, and there is increasing direct influence throughout the Pacific (e.g. Kiribati, Vanuatu, Tonga, Fiji), and Africa and the Indian Ocean through its "aid projects".
Ni Hao. :)

China has some significant headwinds. Most particularly demographic problems and structural economic challenges.
Someone once said 'Demographics is Destiny'.

When there are resources to be exploited then population growth is great for the economy. Ref NZ or the USA 150 years ago. When the population grows but the resource are not expanding or needing fewer people then GDP per capita suffers. Ref NZ for the last 70 years or most African countries and Pacific countries today.
Demography was critical for man powered agricultural countrie; machines ave replaced peasants, much of China's success is due to their attmpts to control their population. I have no trouble imagining a future China with wealth and power and a smaller more elderly population.

dp

No it doesn't, China is unstoppable and this is what the USA hates. The Americans fear coming second place will put their reserve currency at risk. Personally I think that the USA is going to go down like a house of cards, probably during the Biden term in office. If the USA was not faced with fighting and division from within and was prepared to make the changes required to begin to dig themselves out of the hole they created themselves over the last couple of decades then there is hope. The USA is in deep, deep trouble. It going to be so much harder for them to come back instead of being greedy and going down that rabbit hole in the first place.

Well, yes the US has some big issues. But I maintain China does too.

When President-elect Joe Biden is inaugurated next week, he will quickly move to transform most dimensions of US policy. A glaring exception is China. But if Biden maintains outgoing President Donald Trump’s confrontational approach to the world’s second-largest economy, he will come to regret it.

Definitely - Europe has economically hitched its wagon to China and Russia.

Exactly a week after the announcement on December 30 regarding European Union’s long-sought comprehensive investment agreement with China, the Danish Energy Agency received an innocuous revised schedule from Nord Stream 2 AG for the construction of the gas pipeline in the kingdom’s exclusive economic zone. The DEA was notified that “Work on laying the pipeline is scheduled to resume in Danish waters on January 15.” Link

Lol. Some good 'advice' from The Party.
Do what we want you to do or you will come to regret it.
Let's hope Biden can be a strong leader.

Yeah it's simply propaganda and therefore I have mixed feelings on whether it should be published (obviously not my decision!)
Yes strong but also balanced, fair and consistent....

Not sure the Dems like dealing with the Chinese. Also, the Chinese are keen on consolidating gains in their backyard made during the last 4 years. Trade probably is not a big mover for China right now. And Americans have been making the wrong noises about Chinese companies listed there. It will be two more years of winter between these two, is my feeling.
Biden will be preoccupied with uniting America, anyways.

World countries soon will see the same patterns;
1) Buying the local power elites to get in
2) Land purchase/acquisitions, then to be re-sold to the next high price also to 'the preferential buyers money'
3) Really nothing much happening for 'majority' of local populations, what can be showed is the PR/promotion
My advice? absorb/cooperate/harness the non-money driven positive values, the money driven one is just related to consumption greed - human nature is very prone to this quality.