Under Joe Biden, the US trade war on China is only likely to get worse

Illustration: Craig Stephens

These days, talk of Washington’s trade war against China seems to have faded, whether from headlines or in conversation.

But the tariffs that former US president Donald Trump slapped on Chinese goods continue to rack up an estimated US$40 billion in duties each year. Although largely borne by American consumers and manufacturers, these tariffs also hit Chinese imports hard. According to the Peterson Institute for International Economics, China now accounts for only 18 per cent of US goods imports, from 22 per cent before the trade war.

And yet, in spite of a World Trade Organization ruling against the US’ unilateral action, the Biden administration is in no hurry to scrap any of the duties that International Monetary Fund managing director Kristalina Georgieva has described as counterproductive.

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The trade war has not been halted. On the contrary, under President Joe Biden, it remains just as sinister and destructive, if not more so.

With tariffs receding in importance as Washington’s hard-hitting trade tool, export controls have taken centre stage. This tool was first used on ZTE in the spring of 2016, then Huawei Technologies in 2019.

Biden’s White House has used it to blacklist hundreds of Chinese entities and individuals. Other initiatives include the EU-US Trade and Technology Council, and the Quadrilateral Security Dialogue’s critical and emerging technology working group.

US chip ban: America must beware of backing China into a corner

In what Martin Wolf at the Financial Times called “an act of economic warfare” that will “have huge geopolitical consequence”, the Biden administration imposed restrictions on US exports to China last month – an exhaustive package of measures restricting advanced artificial intelligence chips and semiconductor manufacturing tools, and banning US citizens and permanent residents from working in China’s chip industry.

The move is, in Wolf’s words, “far more threatening to Beijing than anything Donald Trump did”, and the aim is to “clearly slow China’s economic development”.

Washington’s new assault on China is a game changer. It targets whole sectors, rather than companies and individuals – in this case, a critical Chinese tech sector. It is, as many Chinese see it, a throwback to the technological blockade that Washington orchestrated against a newly founded Communist China in 1949, in a bid to strangle the new people’s republic.

China’s official response has been limited to protests and condemnations. There have been calls to retaliate in kind, and concerns in the West over a possible Chinese ban on critical mineral exports. But China elected not to emulate Washington in imposing export controls, in line with its commitment to maintain global supply chain stability.

Yet analysts say that a Washington in pursuit of a sectoral technological blockade could extend export controls to other Chinese hi-tech sectors such as quantum computing, biotechnology and artificial intelligence. It is also reportedly working to get allies on board.

It is also hard at work to redraw global supply chains in a politically motivated campaign. In the name of supply chain resilience, the US seeks to dismantle global supply chains and replace them with closed systems that exclude the world’s second-largest economy – in the hope of cutting China off.

To this end, Biden’s administration is doubling down on onshoring and “friend-shoring”. It is rolling out tax breaks under the Inflation Reduction Act to support the setting up of a local supply chain in electrical vehicles while working with allies to develop infrastructure and supply chains in critical sectors such as rare earths.

In the developing world, Biden’s administration is pushing for the restructuring of global supply chains as a priority under plans such as the Indo-Pacific Economic Initiative.

As the need for new global supply chains is premised on China being a threat, Biden’s administration toils to instil suspicion of and concerns about China by painting it as an unfriendly and even a hostile country. It fabricates and exaggerates the risk to current supply chains, as it did when playing up the risk of mainland China’s unification with Taiwan by force after US House speaker Nancy Pelosi’s visit.

Washington is also ratcheting up efforts to reshape global trade rules. Current multilateral trade rules are inadequate for it to constrain and beat China. So it resorts to what it does best: setting new rules. By writing “trade rules for the 21st century” designed to disadvantage China, Washington hopes to prevent it from eroding US dominance.

At the WTO, with China in mind, Washington has, together with the European Union and Japan, prepared detailed rules on state-owned enterprises and industrial subsidies, and it intends to introduce them. Outside the world body, it is pushing for the incorporation of its rules in areas such as labour rights, data flows and the environment.

US is a destructive force for the rules-based global economic order

The meeting between Chinese President Xi Jinping and his US counterpart Joe Biden on November 14 is expected to bring a resolution closer on the issue of punitive US tariffs on Chinese imports, with a partial lifting likely. After all, the duties have been an economic hot potato for the White House.

But the meeting is unlikely to significantly affect Washington’s aggressive trade policy on China in other dimensions, as the US’ geopolitical objectives are not expected to change.

In all probability, Washington’s trade war against China will persist and eventually escalate. As a result, it will become highly consequential. A world economy carved into opposing camps would, according to the IMF, shrink by 1.5 per cent, making most of us poorer and the world a darker place. It would indeed be unfortunate for everyone if the US presses ahead with its trade war against China.

Zhou Xiaoming is former deputy representative of China’s Permanent Mission to the United Nations Office in Geneva

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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