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How US plans to take on Chinese economy

US plans to take on Chinese economy
Trump's trade war with China is a legacy Joe Biden must struggle with

It’s common knowledge that American politics rarely reach a consensus on issues apart from China. Most concur that the US requires action to stop the communist nation’s rise. However, this apparent unity hides disagreements and sometimes even a lack of clarity about what must be done, particularly in economic sectors. Is the ultimate objective to break trade ties with China or to expose the Chinese market to American businesses?

These cross-currents have caused the Joe Biden administration’s discussions to go on for so long that some detractors have accused it of paralysis. The most recent instance of this indecision is the seemingly never-ending discussion of whether to eliminate tariffs on China. But Biden’s strategy for the Chinese economy is taking shape slowly. The upcoming weeks may decide whether it translates to a firm, well-thought-out plan or a jumble of inconsistencies.

The story is quite apparent. America’s secretary of state, Antony Blinken, summarised Biden’s China strategy in three words in a speech in May: “Invest, Align, and Compete.” In other words, America should strengthen its defenses, ally with allies more closely, and challenge China when required. These are useful categories for comprehending how Joe’s government is attempting to deal with China’s economy and propaganda.

Commence with a competition. Under Donald Trump, who drew America away from a residual desire to “engage” China towards a greater confrontation with it, this grabbed center stage. According to estimates by Chad Bown of the Peterson Institute for International Economics, by the time he left power, America’s average tax on Chinese goods had increased from around 3 percent to over 20 percent. What to do with this inheritance is Biden’s first concern.

Joe Biden wants to ease pressure on prices due to the high rate of inflation. The removal of tariffs on China, which are a tax on consumers, would theoretically be beneficial. In actuality, it might only have a minor impact. According to research by the Peterson Institute, eliminating the tariffs would only reduce the current annual inflation rate of more than 8% by 0.3 percentage points. However, each tiny thing matters. The US President is reluctant to take a step that Republicans and perhaps China would perceive as a concession.

Many others, including those in his administration, see the tariffs as a valuable piece of leverage. The most likely result will be a few adjustments. Earlier tariffs imposed by Trump targeted goods like semiconductors. Later taxes, however, were imposed on goods like shoes, which directly impacted consumers. So it would appear simple to decide to remove tariffs on specific consumer goods. Beyond that, resistance to cuts becomes more tenacious. “The government may wish to considerably raise tariffs on high-tech goods and industrial inputs while also lowering them for other goods. It needs to ascertain which are effective and which are not, according to Clete Willems, a trade veteran from the Trump era. Hawks applaud the decrease in American imports from China since the trade war’s inception”.

Additionally, the Biden administration has discussed whether to launch a fresh investigation of China’s economic practices. China’s “forced technology transfers” were the subject of Trump’s extensive investigation, which was carried out by Section 301 of American trade legislation (used to address issues that cannot be resolved within the WTO). That is viewed as a false diagnosis by many in the Biden administration. China’s extensive state capitalism is the true problem.

A new 301 inquiry may highlight America’s economic complaints against China’s industrial policies and subsidies. That would be interesting on an intellectual level. The administration’s readiness to follow a 301’s instructions will be the tougher problem. “Is it prepared to put big fresh sanctions on China?” asks Scott Kennedy of the Washington-based research tank, the Centre for Strategic and International Studies. Even though there has been chatter about a fresh 301 case for months, the White House’s hesitation is evident in the delay in making the announcement.

The array of economic sanctions imposed on firms is another tenet of America’s conflict with China. Trump’s administration paved the way by adding Chinese industry leaders like DJI and Huawei to the government’s “entity list,” banning American businesses from supplying them with any goods without authorization. However, by the conclusion of his presidency, his techniques had become increasingly chaotic, shown by his disastrous request that the Chinese company that owned the immensely popular app TikTok stop its American operations.

Sanctions have been made more specific and have a stronger legal foundation thanks to the work of Biden’s team. The majority of Trump’s corporate sanctions are still in effect. In addition, Biden has imposed a ban on American participation in several Chinese surveillance technology firms. It is also thinking about new regulations to prevent foreign rivals from accessing the personal information of Americans, which might yet catch TikTok. When seen as a whole, the Biden strategy appears to be a professionalization of Trump’s dispute with China rather than a retreat from it.

Alignment with allies, the second component of Biden’s plan, distinguishes him from his predecessor even more. Biden has steadily restored relations, in contrast to Trump, who took great pleasure in dissing America’s most devoted allies. With the inauguration of the Indo-Pacific Economic Framework (IPEF) in May, which brought together nations with a combined GDP of 40%, the cornerstone of his strategy for Asia was announced. It includes Vietnam, Japan, India, and most importantly, China is not included. A united declaration promising to “lower strategic dependence” on China was made after the G7 summit on June 2022 which was another result of Biden’s efforts.

There are concerns that these noble words won’t result in many significant practical actions. The opinions expressed on the IPEF by several Asian diplomats are strikingly similar: it is fantastic to have Washington ready to sit at the table, however, the only dish on the menu is thin gruel. There will be debates at the IPEF about anything from data sharing to decarbonization, but there won’t be any on tariffs, a staple of conventional trade negotiations. This classification is disputed by the Biden presidency. One top official claims that the IPEF’s emphasis on supply chains will be substantive. The official thinks that a deal to speed up port clearance processes might be struck in as short as a year when talks begin later this month.

Even if that happens, many people in the US and overseas are disappointed that Mr. Biden is not taking greater action on trade. Politicians from both parties in Washington continue to push for the United States to rejoin the Trans-Pacific Partnership, a regional trade agreement that Trump withdrew from. Japan and other allies would adore that. To minimize dependency on China, they think it is crucial to create new supply networks. The Biden admin, however, is leery of upsetting trade-wary citizens and fears alienating union backers, so the notion is off the table. The disappointing finding is that Biden’s efforts to connect with partners in its China strategy are limited.

That relates to the last part of Mr. Biden’s strategy, domestic investing. Rhetoric and action are most at odds in this area. After all, Mr. Biden’s “Build Back Better” social and environmental package has not yet passed through Congress. For a project that was intended as a response to China, it is now crunch time. Two different pieces of legislation with the same centerpiece — a $52 billion plan to increase America’s capacity to create semiconductors—have been passed by the Senate and the House. The Senate has bipartisan backing and is more modest. The House, which is almost entirely supported by Democrats, features a jumble of policies, including money to protect coral reefs.

There has reportedly been a recent movement in the negotiations to resolve the gaps, bringing the combined bill closer to the Senate’s version. The development of a mechanism that would for the first time compel American corporations to notify the state of overseas expenditures, creating the prospect that the White House could veto some investments in China, is one component of the House that might survive in a scaled-back form. An agreement will likely need to be reached before Congress’ August recess if the package is to be passed before the midterm elections in November.

The Biden administration has attempted to set the stage for a domestic investment push even without that bill. Trump tried to convince businesses to build factories in America by threatening them and having some success. A thorough supply chain examination has been Biden’s major initiative, which has received less media attention. The government released six distinct papers in February that addressed batteries, semiconductors, and other topics. This is barely comparable to Chinese-style industrial policy. However, the goal is to direct funding and incentives to support American manufacturing.

The Biden strategy might be knocking on an unlocked door. Companies have announced over $75 billion in investments in American semiconductor manufacturing and research since the start of his presidency. In addition to being a reaction to Biden’s conduct, that also acknowledges the vulnerability of international supply networks. Xi Jinping’s reckless pursuit of “zero covid,” which has all but walled off the country, is, in fact, possibly the most helpful policy in weaning corporations off the Chinese market.

If President Biden is successful in increasing American manufacturing, it may come at the expense of increased consumer costs, decreased efficiency, and eventually, slower economic development. He is indeed mending fences with allies. However, in other ways, his approach to dealing with China on the economic front resembles a more refined version of the brawl that Trump began.

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