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Chinese leader Xi Jinping and US President Joe Biden. Picture: BLOOMBERG
Chinese leader Xi Jinping and US President Joe Biden. Picture: BLOOMBERG

Two years ago, then president Donald Trump signed the US-China Phase One trade agreement, hailing it as an “historic” deal. Joe Biden’s team spent the presidential campaign criticising it as limited in scope and lacking teeth. Yet once the Democrat took office, there was a recalibration. In a speech in October, US trade representative Katherine Tai described the framework as “useful” and said it has had “value in stabilising the relationship”.

But she also pledged the administration would make sure Beijing lived up to its commitments. “We must defend to the hilt our economic interests,” she said in a speech at the Center for Strategic and International Studies in Washington. “And that means taking all steps necessary to protect ourselves against the waves of damage inflicted over the years through unfair competition.”

With the midterms looming in November, the White House is under increasing pressure to show it is willing to punish China for not holding up its end of the bargain. Trade data for November show that its imports from the US amounted to less than 60% of the additional $200bn the agreement targeted over two years.

Some analysts say the administration is boxed in when it comes to possible countermeasures. Officials have privately admitted that Trump’s tariffs are inflicting more harm on US businesses and households than on Chinese exporters. They have also acknowledged that the duties have lost a lot of their leverage.

Data point to China having posted a record trade surplus with the US in 2021, thanks in large part to Americans’ pandemic-stoked appetite for Chinese-made goods, including home electronics and bicycles. Raising the tariffs, which cover more than 60% of China’s exports to the US, would be a controversial call at a time when the US economy is seeing its highest inflation in decades. Rebalancing the duties to give relief to US businesses and consumers would risk accusations from Republicans of being soft on Beijing.

“To make progress on structural issues, the administration needs to be prepared to offer China something it wants — or threaten something it doesn’t,” says Kelly Ann Shaw, who served as deputy assistant to the president for international economic affairs under Trump and is now a partner at the law firm Hogan Lovells.

“If it is unwilling or unable to do either, the most likely outcome is a continuation of the status quo.”

Tai and China’s vice-premier Liu He held two virtual meetings in 2021 to discuss China’s performance under the deal as well as longstanding irritants in the relationship, including subsidies and other state support for companies Beijing has designated as national champions. Tai’s deputy, Sarah Bianchi, also engaged in conversations with her Chinese counterparts, which were not publicised by the agency. The talks have yielded no breakthroughs so far, say people familiar with their substance, who spoke on condition of anonymity.

US trade representative spokesman Adam Hodge says the negotiations continue and “it is not in the US interest at this time to get ahead of them”.

“We see this engagement as providing China with an opportunity to demonstrate that it is serious about working to promote stability and fairness in our bilateral trade relationship,” he says.

At the end of 2021, Tai tried to secure another call with Liu but the Chinese side declined the request, said the people. A US official disputed that characterisation and said the US trade representative approached Beijing about setting up a call to talk through outstanding issues but they ultimately agreed to continue discussions on the deputies level until more progress is made. The Chinese embassy in Washington did not respond to a request for comment.

President Biden is paralysed on China because he values the stability of the status quo. It is increasingly clear that President Biden and his team simply do not understand the threat posed by the Chinese Communist Party.
Sen Marc Rubio, Florida Republican

Hodge says the administration will use the full range of tools — and develop new ones as needed — to deal with the broader economic challenges: “We have also been clear-eyed that Beijing has doubled down on its state-centred economic system in a way that makes it unfair for our businesses and workers, and the PRC [People’s Republic of China] is resistant to making meaningful reforms to address concerns shared by the US and many other countries.”

Republicans are seizing on the administration’s decision to leave most of the elements of Trump’s China policy in place as evidence that Biden lacks one of his own.

“President Biden is paralysed on China because he values the stability of the status quo,” said Sen Marco Rubio, the Florida Republican who is one of his party’s most vociferous China hawks, in an email. “It is increasingly clear that President Biden and his team simply do not understand the threat posed by the Chinese Communist Party. As a result, they have no plan or strategy to protect America’s economic and national security.”

Officials in the administration point to the differences between the two presidents’ approaches, saying Trump’s pugnacious unilateralism alienated allies caught in the trade war’s crossfire while delivering no concessions from Beijing. They argue that Biden’s united-we-stand strategy, which seeks to enlist the EU, Japan, and other key partners to create a counterweight to China’s political and economic influence, will yield more results.

The US and its allies have committed to taking joint action against forced labour and to develop a framework that cuts off Beijing’s access to sensitive technologies, especially semiconductors produced in the US and other nations. The continuing talks on the export bans have not yet resulted in tangible action.

Alliances of the willing

Some Democrats say the White House has not been forceful enough in staking out its own position on China. “I’m not sure Biden has clearly articulated a China policy yet,” says Virginia senator Mark Warner. “I would argue they’re working towards building these alliances of the willing that Trump was so unwilling to do, and I’d give them a grade of trying, but incomplete, at this point.”

Brian Stryker, a partner at polling firm ALG Research, says opinion surveys show the Democratic Party has allowed Republicans to take the China and economic competitiveness issues from them. One potential win for Democrats to take into the midterms, he says, would be to pass the US Innovation and Competition Act, which has been stalled in Congress for months. The legislation seeks to counter China’s ambitions to become a global force in advanced technology areas, including semiconductors, by authorising $52bn in funding to bolster US research and development, as well as subsidies for new chip plants.

“If Democrats don’t pass that competitiveness bill and have nothing to talk about on China, we will have caused our own problem there,” says Stryker, whose firm has a long history of working with Democratic candidates, including Biden. “I think it will really hurt Democrats at the ballot without having something to say about China and supply chain issues.”

The legislation had bipartisan support in the Senate, making it through on a 68-32 tally in June. But its path to success in the House of Representatives may be narrower, as some Republicans have quietly voiced reservations about handing Biden and Democrats a perceived win so close to the elections.

The administration’s allies say the measure has taken a backseat to many other domestic priorities Biden and congressional Democrats wanted to celebrate in the midterms. Now that some of them have lost momentum or stalled entirely, the focus is shifting back to the competition legislation. A White House official said the team has engaged consistently with Senate and House leadership and relevant committees in both chambers to find common ground on their parts of the measure.

The White House’s lack of pressure on the House to pass the bill after it moved through the Senate is a “missed opportunity”, says Warner. “I’ve not understood why that’s not been a higher priority. But I think it will be now.” 

Bloomberg.

More stories like this are available on bloomberg.com

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