Recently, President Trump signed an executive order, banning investments by US residents in thirty-one Chinese companies deemed to be aiding the modernization of the People’s Liberation Army and other security services. The prohibition, the latest in a series of financial measures taken against China, comes into effect on 11th January, just nine days before the inauguration of President-elect Biden. Quite what else Trump will do to add to Joe Biden’s China inbox before he leaves the White House is anyone’s guess, but the paramount long-term question is whether the US-China relationship will change under Biden?
This may be a rhetorical question, bearing in mind that that the US-China relationship is in structural decay. The world’s two biggest economies have locked horns not only over trade, but also over technology, an array of national security issues, and ultimately over values, standards and fundamental beliefs.
Joe Biden and Xi Jinping struck up a good relationship in 2011 and 2012, according to seasoned observers. Perhaps the personal chemistry between the two men is still good, but there is no question that a systemic rift between both countries has opened.
No one knows where this is headed. It might settle into what economists call a ‘stable disequilibrium’ in which the US and China disagree over various issues, but still sustain dialogue and even cooperate where mutual interests are aligned. Cooperation is possible in areas such as climate change, global health, global financial stability, reform of international organizations, peacekeeping, sustainable development goals, combatting terrorism, and cybersecurity. There are certainly those in the Chinese Communist Party (CCP) who are keen for such engagement.
Then again, the bilateral relationship might continue to deteriorate to the point where the risk of accidents, misunderstandings and miscalculations result in tensions, even conflict.
Of all the potential flashpoints, the most dangerous is probably Taiwan. There is little doubt that the US will develop stronger economic and military ties with Taiwan, much to the chagrin of Beijing. Equally, China’s Taiwan policy of reunification with the mainland will remain uncompromising and threatening. Territorial disputes in the South China Sea are another source of conflict.
Still, Biden’s China policy will be less volatile and unilateralist, and more predictable, professional, and inclusive. It might deploy different tools, such as a greater emphasis on sanctions, possibly using Magnitsky provisions, rather than tariffs. It will emphasize human rights with a focus on Xinjiang Province and Hong Kong, and will use policy carrots and sticks, but in different ways from the outgoing Trump Administration. We should expect a Biden administration to confront China’s tendency to assert its own principles with a renewed emphasis on democratic principles and market-based economic decision-making.
The Biden administration will also work more closely with allies in Europe and Asia to build and strengthen joint positions to counter China more effectively. Biden has already indicated he would rejoin the Paris Agreement on climate change and is likely to re-engage with international agencies such as the World Health Organization and World Trade Organization. Re-engagement could, of course, present the US-China relationship with fresh frisson, as China has moved to fill vacuums created by US abandonment over the last four years. It would send a strong positive signal to America’s Asian allies, if not to China, if the US also announced it was willing to consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the successor to the Trans-Pacific Partnership.
Biden’s trade team will not try to fix bilateral trade imbalances with China, as the Trump team did. Biden’s advisers understand that trade imbalances arise from domestic policies determining savings and investment, and that tariffs distort trade and hurt both sides.
A different approach might see the US offering to negotiate the removal of tariffs as a quid pro quo for changing more important non-tariff barriers, such as distortionary policies regarding procurement, intellectual property, social and environmental dumping or supply chain operations. These could form a part of a broader economic dialogue, designed to encourage China to change domestic policy affecting its consumption and savings. Biden may also pursue pledges to limit the role of Chinese and other state telecommunications firms in the rollout of 5G, and to address concerns about data privacy and security.
Until now, China has seen US policy under Trump as one of containment, trying to hold it down in Asia and the wider world. This is a position that no Chinese government can or will accept. It goes beyond personalities and has also grown out of China’s growing self-confidence—or hubris.
Indeed, there is little recognition by China that its own economic, industrial and foreign policies have contributed to a high state of tension in the global system. There is a widespread reluctance in much of the world to accept China’s narrative about its ‘peaceful rise’ or its ‘common destiny for the shared future of mankind’.
In a recent PEW survey of fourteen advanced nations, for example, a record 60% of respondents had an unfavorable view of China and Xi Jinping. China has done itself few favors. Crackdowns in Xinjiang and Hong Kong have generated a vortex of ill-repute, while with India, China has engaged in overt conflict in sensitive border areas.
The rest of the world is becoming more attuned to the CCP’s strategic goals, which Xi Jinping has not been shy in proclaiming, namely that it is locked in a long-term struggle in which it seeks the triumph of socialism over capitalism. For anyone that’s listening, that should be clear enough.
In that regard, it is worth highlighting that the recent 5th Plenum of the CCP deliberated the longer-term vision about China’s role in the global order. As well as proclaiming the inevitability of China’s glorious future through innovation and technology, the CCP focused on security issues, ranging from food and production to employment, technology and defense. Confronted by a more hostile external environment, China is prepared to emphasize President Xi’s newest slogan, ‘dual circulation strategy’, in effect China’s version of decoupling or self-reliance.
Chinese leaders are at pains to point out that this is not about autarky, and indeed it would be wrong to see China as shutting the door on the outside world. Yet, the domestic focus is strong, as is the desire to ‘de-Americanize’ China’s reliance on imported technology.
Biden’s China team will closely review the CCP’s 14th five-year plan (2021-2025) when it is released next spring. Mutual interest—indeed mutual survival—rests upon two strategic adversaries understanding one another, knowing the limits they may test, and acknowledging that their differences are not merely about the personalities of who momentarily directs national policy. We should hope that the US-China rivalry will somehow lead to a new balance of power in which the barriers to compromise do not preclude stable co-existence.