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SHANGHAI: When President-elect Joe Biden takes office next week, he will move quickly to transform most dimensions of American politics.
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 openly antagonistic to China than Trump, he has echoed many of his predecessor’s complaints about China’s business practices, accusing the country of “stealing” intellectual property, dumping products in foreign markets, and forcing transfers. technology company from US companies.
And it has indicated that it will not immediately abandon the “phase one” bilateral trade agreement reached last year, nor will it eliminate the 25 percent tariffs that now affect about half of China’s exports to the United States.
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In Biden’s view, it is best not to make any significant changes to China’s current approach until he conducts a full review of the existing deal and consults with America’s traditional allies in Asia and Europe, in order to “develop a coherent strategy. “.
Your elected US Trade Representative, Katherine Tai, an Asian-American business attorney (and fluent Mandarin speaker) with extensive experience in China, could play an important role in the review process.
HIGH RATES INCOMPATIBLE WITH PHASE ONE
But a full examination should not be necessary to see that the high tariffs and the phase one agreement are fundamentally incompatible.
In the past two years, the share of Chinese exports to the US subject to additional tariffs has skyrocketed from an almost negligible share to more than 70 percent. And the share of U.S. exports to China subject to tariffs has soared, from 2% in February 2018 to more than 50% two years later.
A worker packs bottles of soybean oil made from imported U.S. soybeans at the Liangyou Industry and Commerce Plant in Qufu, Shandong Province. (Photo: Reuters / Jason Lee)
During the same period, the US has implemented 11 rounds of sanctions against Chinese entities. The addition last month of 59 Chinese companies and individuals to the U.S. 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 meet its commitment, included in the phase one agreement, to buy an additional $ 200 billion in US goods and services from 2020 to 2021.
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Since January 2020, US exports to China have fallen far short of the agreement’s targets. As a result, by November 2020, China had met only 57% of its annual purchasing commitment.
China’s options for accelerating progress are very limited. The private sector, which accounts for nearly 80 percent of China’s demand for US imports, cannot simply be instructed to buy US products at such high tariffs. And forcing state-owned companies to take over would create problems of its own.
The bottom line is clear: As long as Biden upholds Trump’s confrontational approach, the deal phase will be fundamentally unworkable and it will be virtually impossible to move further toward a mutually beneficial business relationship. Two-way trade could even collapse.
READ: Comment: Parts of Asia will miss Donald Trump’s tough China policy
AMERICA INCREASINGLY DISADVANTAGED
But this does not mean that the Biden administration only needs to eliminate the tariffs. The phase one agreement is also deeply flawed, not least because complying with it would force China to cut imports from other countries.
By giving the United States a significant advantage over other Chinese trading partners, the agreement may even violate the World Trade Organization’s principle of non-discrimination.
FILE PHOTO: A delegate arrives before a meeting at the World Trade Organization (WTO) in Geneva, Switzerland, on October 28, 2020. REUTERS / Denis Balibouse
Therefore, other countries are trying to level the playing field.
In late 2020, the European Union and China concluded the Comprehensive Agreement on Investment, and the ten ASEAN countries signed the Regional Comprehensive Economic Partnership (RCEP), along with China, Japan, South Korea, Australia and New Zealand.
None of this benefits the United States. For starters, ASEAN countries, which together make up America’s fourth-largest export market, are likely to transfer more trade to their RCEP partners.
READ: Comment: Can RCEP Save Singapore’s Economy?
The fact that the RCEP lacks the labor and environmental standards seen in the agreements with Canada, Mexico and the United States will reinforce this change.
The RCEP is also likely to boost Chinese demand for Australian and New Zealand agricultural and energy exports. And by indirectly establishing a free trade zone between China, Japan and South Korea, the so-called iron triangle, it will consolidate supply chains in Northeast Asia and the Western Pacific.
This places the United States at a growing strategic disadvantage.
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Rather than defend Trump’s confrontational China’s policy, Biden should accept China’s central role in the global economy and pursue a non-discriminatory and mutually beneficial trade deal.
China’s efforts to join the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, which evolved from the Trans-Pacific Partnership after Trump left it upon taking office four years ago, could provide an important opening here.
The Biden administration promises a new beginning for the United States and its relations with the world. To fulfill that promise, you must end your predecessor’s disastrous trade war against China.
Zhang Jun is Dean of the Faculty 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 visiting fellow at CERDI-IDREC, Universite Clermont Auvergne.
