Compass Money: Biden’s Trade Plan With China and What it Means

Would the trade war continue under the Biden Administration? (Supply Chain Academy)

The Biden administration outlined and released its 2021 trade agenda on March 1. More significantly, Trade Representative Nominee Katherine Tai made clear that the administration is not scrapping former President Donald Trump’s playbook, but instead taking “all available tools to fight China’s unfair trade practices” under consideration. While Tai did not address any specific plans, she is intent on resorting to more punitive tools if bilateral trade talks prove ineffective. In her Senate Finance committee hearings, Tai said that China must commit to its Phase-One Pact commitments, in which China had agreed to import nearly $200 billion worth of U.S. goods. Infringement of Intellectual property rights, lack of domestic market access to U.S. financial services providers, and unfair technological transfer remain key issues that the Biden administration presses China to reform.

While President Joe Biden seeks to restore the cooperative liberal international order that existed under former President Barack Obama, China’s position has changed significantly in the past four years. China’s shift suggests that Biden may take a more aggressive stance against a more powerful China. China’s economy has fared well through COVID-19 relative to the negative GDP growth that Europe and the U.S. suffered in 2020. Trump’s withdrawal from the Trans-Pacific Partnership (TPP) has excluded the U.S. from significant trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). As Vice President under Obama, Biden largely supported the TPP, which the U.S. signed in February 2016. However, Biden has taken a noncommittal stance on reentering the trade deal, instead prioritizing tackling COVID-19 and unemployment. 

As Americans’ views of China have worsened and there have been talks of a U.S.-China economic decoupling, a business strategy called China-plus-one has surfaced. The plan refers to the expansion or relocation of business operations into other markets that offer similar comparative advantages to China. Countries such as India, Bangladesh, and ASEAN countries including Vietnam, Malaysia, and Thailand appeal to manufacturers for their lower labor cost and the new market access to the burgeoning middle-class population. Countries such as Vietnam also enjoy exclusive Free Trade Agreements with the EU under the EVFTA, one which other developing countries in the area, as well as China, have been able to strike. COVID-19 has depicted the risks of economic interdependence between China and the US, further pushing American businesses to mitigate the risk by diversifying the global supply chain. As China takes on a more aggressive position in the South China Sea disputes, ASEAN welcomes a continued robust economic partnership with the U.S. as a hedge against the regional geopolitical dominance that China has asserted.

The Biden administration showed its intention to make a new pivot toward its Asian allies when Biden appointed Kurt Campbell, chairman and CEO of the Asia Group, to be the coordinator for Indo-Pacific affairs on the National Security Council. Campbell, the U.S. diplomat who served as Assistant Secretary of State for East Asian and Pacific Affairs in the first Obama administration, would assure continued a return of the normalcy of American engagement in the region. 

“President Biden will show up and engage ASEAN (the Association of Southeast Asian Nations) on critical issues of common interest,” incoming Secretary of State Antony Blinken said. However, with or without American leadership in the region, ASEAN will continue to develop at the impressive pace it has in the past few years, either by seeking cooperation with other East Asian countries, with Europe, or among themselves.