Former United Nations Ambassador Nikki Haley said on Monday “Communist China gave us the coronavirus.” Secretary of State Mike Pompeo has promised that jobs will “come home” from China on Tuesday. Trump himself foresaw the strategy on Sunday, promising to bring back 1 million jobs from China and deny federal contracts to companies moving jobs there. “We do not have to” do business with China, “Trump said in a Fox interview, adding that he is ready to decouple the economies” if they do not treat us well. “
But separating the world’s two largest economies is next to impossible, and any hasty attempt to cut ties – such as the recent ban on sales to telecom giant Huawei – could bring massive costs to the domestic economy.
China is the third-largest trading partner of America, after Canada and Mexico, and although bilateral trade slowed in 2019, the Census Bureau says it still came close to $ 560 billion.
“Is it realistic to completely disconnect all sectors? I do not think so, and I do not think it is desirable, “said Clete Willems, a partner at Akin Gump and a former trade adviser to President Trump. “It would be a mistake to think that you can bring any of those jobs or supply chains back to the US, so I think the administration needs to think about how they can work with allies and trusted partners on supply chain issues. “
There are clear divisions in the White House over how difficult it is to push China. Trade lawyers in Washington expect economic advisers such as Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow to normalize trade with China in every second Trump term. On the other hand, there are trade advisers Peter Navarro and the president’s national security team, where figures like Secretary of State Mike Pompeo want the US to keep Chinese companies – and the ruling Communist Party – out of critical industries such as telecom, energy and healthcare.
Instead of a complete decoupling of China, the likely strategy is “diversification”, as the US seeks to limit Beijing’s involvement in critical sectors and relocate US companies to other lower-wage countries.
“A lot of American companies are starting to diversify from China, but they’re not coming back to the US right now,” said Ho-Fung Hung, a professor of political economy at Johns Hopkins School of Advanced International Studies. “The global manufacturing supply chain is already widespread in Asia and elsewhere, so if you move one part from China, it’s unlikely to return to the US”
And rapid policy moves to decouple sectors of Beijing – such as the recent US ban on sales to telecom giant Huawei and its affiliates – could mean huge losses for U.S. companies relying on access to China’s 1.4 billion-person economy.
Some further weakening of ties with the Chinese economy may be inevitable, regardless of who wins the presidency. Former Vice President Joe Biden promised last week in his speech to the Democratic National Convention that if he is in the Oval Office, America “will never again be at the mercy of China and other foreign countries” for medical supplies and other critical goods, because “we make them here in America.”
Traders see a critical difference between China’s approaches to the candidates. Trump prefers to fight China alone, sometimes angering allies with one-sided tariffs. Meanwhile, most observers, even some Republicans, expect Biden to engage allies as he seeks confidence in the Chinese for critical products.
Some U.S. business interests in China say allies on board with U.S. sanctions are critical to maintaining their competitiveness. If the US moves to limit business relations with Beijing but allies do not, companies from those countries can simply fill in for U.S. suppliers with little influence over the Chinese.
“It’s a huge concern for us and our members,” said Jacob Parker, a senior vice president at the U.S. China Business Council. “If companies are forced or restricted to buying from the Chinese market, but there is no coalition of allies doing similar things, then American companies will lose market share to European companies.”
The tech sector says a version of that story is already playing out in semiconductor production after the White House blocked sales of microchips to Chinese telecom giant Huawei and its suppliers.
The White House and leaders from both parties are concerned that the Chinese could use Huawei technology to spy on the US if the company is allowed to play a key role in building the next generation of wireless networks, like 5G. But U.S. semiconductor companies say the administration’s new sales ban is too broad, and affects not only Huawei, but all companies doing business about it, billions in sales of microchips to companies worldwide.
The White House is now pushing for world governments to replicate their Huawei policies, but unlike a ban in the UK, Europe and others still need to follow suit.
Willems said the administration is still working to “get the balance right” when it comes to blocking Chinese companies on security grounds. But he stressed that one of the candidates would face the daunting task of deciding which Chinese investments are national security threats and which are favorable trade.
“There’s a legitimate national security threat when it comes to Huawei … but I do not think you should apply that logic to less sensitive materials,” Willems said. “If we use national security justifications to restrict market access in our own country, we need to be very precise about what the threat is to which we are responding and design a measure that responds to that threat.”
Along with Trump’s efforts to restrict Huawei, the White House is pushing U.S. utilities to remove Chinese-made devices from their power grids, prompting Beijing to use them to activate outages. Both Trump and Biden have also said they want to bring medical supply chains out of China after their critical medical supplies were severely disrupted in the early days of the pandemic.
Willems said a second Trump term could also bring measures to block U.S. financial institutions from investing in Chinese companies that could harm human rights or help their military. As in the technical sector, one of the candidates will be given the unenviable task of deciding which Chinese companies will be outside investment limits in the coming years.
“This is another area where we need to be more nuanced in our approach and think through which companies and which investments in China are problematic, because it really helps their military, for example,” he said. “But I do not think we ever want to be in a position where we have no investment in China.”
Trump’s rhetoric against China may be more of an election ploy than a policy platform. But while Beijing soon dismissed such an aggressive language during the Trump presidency, Hung said Chinese leaders take it more seriously today. “They realized it wasn’t just very talkative,” he said. “They take action on many things that hurt Chinese interests.”
