A year ago, on Dec. 21, 2020, I wrote an article titled “Time to Turn the Page,” in anticipation of improved China-U.S. trade relations following Joe Biden's election. A full year has elapsed and, disappointingly, this has not happened.
Biden and Chinese President Xi Jinping spoke in a key video summit in mid-November that set a framework and guidelines for the bilateral relationship. Also, intensive dialogue at the ministerial level also took place during the year, all of which were constructive. However, in action, there has been little change by the United States and hence little substantive easing of the current tensions.
Biden's containment policy
The Biden administration has kept the high tariffs on $370 billion Chinese goods, despite demand by China and people inside America for their removal. Janet Yellen, the U.S. treasury secretary, said explicitly that the tariffs were not the right solution and only hurt the American economy. Strong appeals from the U.S. business community for scrapping the tariffs are also mounting. But the U.S. trade representative has not revoked them but only accelerated the tariff exclusion process.
The unilateral sanctions and high-tech restrictions have only intensified in the second half of this year. U.S. lawmakers enacted the Telecommunication Equipment Safety Act to tighten restrictions on Huawei and ZTE on Oct. 29. The Federal Communications Commission published list of equipment and services that it said pose a threat to national security and terminated China Telecom America's authority to provide services. On Nov. 24 and Dec. 16, the U.S. Commerce Department announced sanctions first on 12 and ultimately on 34 Chinese high-tech companies in the fields of artificial intelligence, big data, semiconductor chips and quantum computing.
President Biden has been most skillful in aligning U.S. allies to contain China. The administration launched the Quad Summit and AUKUS in the Indo-Pacific, and the TTC with European Union. The G7 summit in Cornwall, UK, in late June announced the Build Back Better World Initiative to counter China's Belt and Road Initiative, and the subsequent EU-U.S. summit launched the TTC to line up supply chains of semiconductor chips and other leading technologies with countries “sharing the same values” so as to “deny China.” Just recently, Gina Raimondo, the U.S. secretary of commerce, toured Southeast Asia for an Indo-Pacific economic framework to deplete China.
Trade has been increasingly hijacked by political and ideological motives. The U.S. Senate passed an act to ban imports from Xinjiang, China, on false grounds of forced labor. The senators seemed to love the lies, which created a new arsenal for demonizing China and blocking Xinjiang from external trade relations.
All those developments have only aggravated China-U.S. bilateral relationship, including trade. They demonstrate two distinguishing features of the Biden administration's China trade policy, starting with a values orientation. The whole trade policy is guided by America's stated core values of “democracy” and “human rights.” They see that China, as a socialist country led by the CPC, has completely different core values. They define China as a grave threat to U.S. national security that must be doused.
The second feature is an orientation toward hegemony. There is clear intolerance for China's economic growth edging closer to that of the U.S. (China's GDP in 2021 will be roughly 75 percent of the U.S., the closest in more than a century.) And China's high-tech growth is challenging American dominance. Anti-China positions have become politically correct in the domestic political ecology of the U.S.
It's not working
Anti-China policies, however, have failed to check bilateral trade, which, ironically, has been booming. Chinese Customs data show that two-way trade volume in the first 11 months was 30.2 percent higher than a year ago, and 7.7 percent higher than the whole year of 2018, the previous record, before the effects of the trade war were felt. The whole year of 2021 may see trade volume reaching $750 billion, compared with $ 633.5 billion in 2018. Chinese exports to the U.S. are up more than $90 billion; imports are up $25 billion.
The first 11 months of this year have also witnessed an increase in China's foreign direct investment inflows —up 21.4 percent from a year ago and hitting $157.2 billion.
The stern restrictions on high-tech trade (semiconductor chips, in particular) have also made little difference. During the first 10 months of this year, Chinese domestic output of chips rose by 22.2 percent year-on-year. And the first 11 months saw chip exports rise by 34 percent, with imports up 23.4 percent. China's global share continues to rise rapidly.
A recent study by the Belfer Center of the Kennedy School at Harvard University found that China has overtaken the U.S. in AI, 5G and quantum computing. China has six times the number of papers on AI than the U.S., 87 percent of world's 5G stations and two of the world's top five suppliers in 5G technology. The U.S. has zero. The Semiconductor Industry Association (U.S.) estimates that China will become the world largest chip supplier, accounting for 40 percent of the global market, by 2030.
The alignment of the United States and its allies in containing China has had lackluster results. In the first three quarters this year, China-ASEAN trade reached $630.54 billion, while the U.S.-ASEAN trade volume was only $278.81 billion. In the past three years, China-ASEAN trade volume rose by 45.3 percent, while that of U.S.-ASEAN trade rose by 34.1 percent. China-ASEAN trade was 2.26 times that of U.S.-ASEAN trade during the first three quarters of this year, compared with 2.15 times three years ago. Meanwhile, China-EU trade expanded by 33.8 percent, while U.S.-EU trade grew by a paltry 8.2 percent. The RCEP, which takes effect on Jan. 1, accounts for 30 percent of world trade and encompasses China, ASEAN, Japan, South Korea, Australia and New Zealand — but not the U.S..
By almost any reckoning, Washington's containment policy is not working. What's wrong?
America's first mistake is that it has the wrong strategic goal. It sees China as the largest threat to its geopolitical, economic and military dominance. In fact, China is not any of that. The starting point — U.S. hegemony — is a big problem. The world order is based on multilateralism with the UN and its charter at the core, not on the dominance of a single country.
China wants to grow its economy solely to improve the livelihoods of its 1.4 billion people, not for displacing the U.S. When China's per capita GDP reaches $20,000, its total GDP will be $28 trillion, one-third larger than the U.S. currently. Even then, its per capita GDP will be lower than the threshold of OECD member economies and only 30 percent of the U.S. So, what's the threat?
America's second mistake is its total neglect of global economic laws. Both the Chinese and U.S. economies are operating on the basis of global supply chains (GSC), which follow the most effective allocation of various resources, capital, technology, market and talent worldwide. The GSCs follow only economic laws, not the will of governments.
The way forward
Both China and the United States need the clarity of hindsight first to learn key lessons before looking forward to realistic, feasible ways to manage differences and promote cooperation.
First, both governments need to set concrete guidelines for peaceful coexistence, as agreed by presidents Xi and Biden in their November video summit. Peaceful coexistence is based on five principles: mutual respect for sovereignty and territorial integrity; non-aggression; non-interference in internal affairs; equality and mutual benefits; and peaceful coexistence. Thus, the U.S. should not try to dampen China's success but instead cooperate for the prosperity of both. The U.S. should no longer challenge China over Taiwan, as the island is Chinese territory. Nor should it challenge China over Xinjiang, which is China's internal affair. By seeking equality and mutual benefits, trade issues can be unlinked from political factors.
Second, the trade teams of both governments should start serious, substantive consultations identifying strategic and practical issues. Various ad hoc study groups of experts should be set up for a thorough study of the major problems and concerns and try to stake out common ground, with feasible proposals for both governments. During the process, the U.S. tariffs on Chinese goods should be dropped.
Third, industry associations and chambers of commerce in both countries should set up joint working groups covering AI, 5G, semiconductors, quantum computing and cybersecurity to develop feasible proposals to solve issues of cooperation and security. The purpose of the mechanism is to build up an open, equal, mutually beneficial China-U.S. supply chain.
Fourth, sub-national cooperation, especially between U.S. states and Chinese provinces, should be energetically encouraged. This should cover climate change, alternate energy, AI, cross-border e-commerce, AI, 5G, agriculture, biotechnology and capital markets, to name just a few sectors.
Reasonable, constructive efforts by both governments and business communities in 2022 should seek new ways to ease the current tensions and build a stable relationship between the world's two largest economies in the years ahead.
