One of the biggest foreign policy concerns for many people is the deteriorating relations between the U.S. and China, which have no end in sight. The standoff has reached the point where President Xi has dismissed overtures by the Biden administration to discuss ways to reduce tensions. Meanwhile, Xi has reached out to French President Emmanuel Macron and Brazilian President Lula da Silva to foster closer economic ties with Europe and Brazil. The U.S. Ambassador to China signaled on Tuesday that the U.S. would like to engage in high-level talks, but there is a lot to overcome to produce a thaw.
According to The Economist, Chinese officials have come to believe that America will never accept any country becoming as powerful as it is: “On a first visit to Beijing by our senior editors since China lifted its zero-covid policy, we were astonished at how the atmosphere had become drenched in intimidation and paranoia.”
China’s distrust of the U.S. can be traced to the imposition of tariffs on its goods by President Trump. When I presented at a conference in Shanghai in the spring of 2018, I was asked, “Why does the U.S. want to block China’s development?” My response was that it was not the objective of the U.S. actions, but the issue was complex and would not be resolved for a long time.
Meanwhile, China’s skepticism about U.S. objectives has been reinforced by National Security Advisor Jake Sullivan’s statement last fall that the U.S. government wanted to hobble China’s capabilities in “foundational technologies” such as artificial intelligence (AI), biotech and clean energy. His speech has been dubbed the “Sullivan doctrine,” as it went far beyond previous sanctions on China. Sullivan has since articulated a framework for coordinating domestic economic policies with foreign policy in a speech at the Brookings Institution. He has also clarified that the goal of U.S. policy is to “de-risk” the relationship with China rather than to decouple it, which is in accord with the position of the European Union (EU).
So, what can the U.S. do to reengage with China? I contend there are three avenues President Biden should pursue.
The first is to clarify the U.S. position on trade with China. Treasury Secretary Janet Yellen sought to do so in a recent speech and in an interview with the Financial Times. Yellen underscored that the while the U.S. would prioritize areas of national security in setting trade policy, it was not trying to undermine China’s competitiveness or its economic development. At the same time, she made clear that the U.S. would continually review, and potentially expand, its list of banned exports to China.
Yellen’s remarks are unlikely to sway China’s leaders, however, without a clear articulation of how the U.S. government will separate national security from broader trade issues. The Trump administration, after all, justified tariffs on steel and aluminum from Canada, Mexico and the EU on grounds of national security. Mona Pinchis-Paulson of Stanford Law School describes how GATT Security Exceptions to the World Trade Organization (WTO) statutes have become more common in recent years. Her assessment is that this “risks creating a loophole for governments to act opportunistically and without legal consequence under international law.”
Statements by U.S. Trade Representative Katherine Tai, are also at odds with Yellen’s message. In a policy speech at American University last month, Tai argued that the traditional approach of cutting tariffs no longer works in the highly competitive global economy of the 21st century. She stated that trade needs to work with industrial policy and that past trade deals focused on “aggressive liberalization and trade elimination” made the U.S. too dependent on China for critical materials.
In the end, only President Biden can resolve what the U.S. stance is on trade issues. To do so, the key departments involved — namely Treasury, Commerce and State — will need to articulate a coherent strategy. As I have noted in a previous commentary, Biden’s trade policy is a mystery for many people.
Beyond this, the second avenue is to ensure that the U.S. stance is compatible with America’s allies in Europe. One of Biden’s signature accomplishments has been to strengthen the Western alliance in the wake of Russia’s invasion of Ukraine. But the task of forging an alliance for dealing with China is much harder because China is integral to the global economy and EU member countries do not share a common view.
For example, President Macron urged President Xi to prod Russia to end the war with Ukraine, but he also sought to distance U.S. concerns with Taiwan from his own perspective. Meanwhile, European Commission President Ursula von der Leyen has said that the EU should take a harder line on China, including limiting trade, if China continues aggressive actions on security and commercial issues.
The third avenue is to strengthen ties with U.S. allies in Asia-Pacific. As Gideon Rachman of the Financial Times observes, the Biden administration has made some progress on the national security front. The actions include increased Japanese military spending, the Aukus treaty between Australia, the United Kingdom and the U.S., the strengthening of the Quadrilateral Security Dialogue (Quad) linking the U.S., India, Japan and Australia, and decisions by the Philippines to allow the U.S. enhanced bases near Taiwan. They should serve as a deterrent to China’s military ambitions.
On the trade front, however, there has been little headway since President Trump pulled the U.S. out of the Trans-Pacific Partnership (TPP) in 2017. Meanwhile, China has been filling the void through a series of regional trade agreements, and it has become the world’s largest trading nation, with two-thirds of the world trading more with China than the U.S. Accordingly, the U.S. must reestablish a leadership role by recommitting to an Asia-Pacific trading bloc.
Finally, while each of these avenues may prove difficult, the biggest mistake for the U.S. would be to abandon efforts to reengage with China. Considering all that is at stake, there is simply no alternative but to keep China as an integral part of the global trading system.
Nicholas Sargen, Ph.D., is an economic consultant for Fort Washington Investment Advisors and is affiliated with the University of Virginia’s Darden School of Business. He has co-authored three books, including, “Global Shocks: An Investment Guide for Turbulent Markets.”