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Flags of China and U.S. are displayed on a printed circuit board with semiconductor chips.
US Treasury chief goes to China
US Treasury Secretary Janet Yellen is kicking off a four-day visit to China on Thursday. The last time such a visit took place was four years ago, at the height of the Trump’s US-China trade war.
To be sure, Yellen’s trip is more about messaging than substance, with both sides already trying to mitigate expectations of a significant breakthrough as bilateral relations remain extremely tense.
Still, there will be many thorny issues on the agenda, in particular deepening tit-for-tat trade and tech controls. While taking a less publicly combative approach toward China than his predecessor, President Joe Biden has kept in place almost all of the Trump-era trade tariffs on Chinese products, and has in fact doubled down on efforts to quash Beijing’s influence in the burgeoning tech space.
Crucially, Biden has recruited allies to join Washington in blocking semiconductor exports to China, as well as other materials crucial to the development of artificial intelligence. In fact, the Dutch government just announced new export restrictions on machinery, prompting China to hit back by placing fresh export bans on two crucial metals needed to make chips – and warning of more to come.
Yellen will hope to lower temperatures amid growing fears that China could extend these restrictions to other commodities – like rare earth minerals, a field Beijing dominates – that are crucial to manufacturing electric vehicles and other essential tech. But China isn’t going to unilaterally soften its approach, and it is hard to imagine the US changing its tune in the months ahead, particularly amid an election cycle where tough-on-China policies resonate across the political aisle.
Can you get by with a little help from your friends?
The pandemic inflicted a huge shock on supply chains, but there is another force at work remapping global trade flows too: the deepening ideological divide between the US and China, framed in Washington as a broader competition between democracies and autocracies.
The so-called “de-coupling” between the world’s two largest economies began during the presidency of Donald Trump, who slapped tariffs on China in a largely unsuccessful attempt to address the real harms that offshoring has done to some US workers.
US Treasury Secretary Janet Yellen recently touted the benefits of so-called “friendshoring” on a visit to South Korea, which is trying to lure American supply chains away from China and to start making more microchips itself. Southeast Asian manufacturing powerhouses like Malaysia, Vietnam, Thailand, and Indonesia are also keen to continue capitalizing as “friends” of the US.
Friendshoring may offer certain protections in a world of deepening ideological competition, but there are tradeoffs: “friendly” countries may not always produce goods as cheaply or efficiently, meaning that consumers may have to accept higher prices, particularly in the short term. Is the tradeoff of greater security in exchange for less efficiency worth it? More to the point, is it now unavoidable?
Should Biden lift Trump’s China tariffs?
Sometime this month, US President Joe Biden is expected to make up his mind about nixing (some of) the tariffs his predecessor, Donald Trump, slapped on three-quarters of Chinese imports. This was part of a wider trade war against Beijing, which hit back in kind.
Two years ago, then-candidate Biden said he'd remove Trump’s China tariffs if he won the White House but later decided to leave them in place — as he's done with many Trump-era China policies. Now, Biden is taking another look at keeping his campaign promise because, hello, inflation.
Most economists think it’s a no-brainer. "It was a poorly conceived policy right from the start. Those tariffs are essentially paid for by American consumers and businesses and haven't achieved anything in terms of US-China relations," says David Dollar, a senior fellow at the Brookings Institution. "It's time to recognize [the policy] hasn't worked."
Trump scored political points by playing up his anti-China bonafides and telling his base that the tariffs would bring back manufacturing jobs from China. Spoiler: they didn't, and the overall impact of his trade war on the US economy has been ... disastrous.
Indeed, the Tax Foundation estimates that since 2019 the tariffs have imposed nearly $80 billion in new taxes on Americans by making Chinese products more expensive, cut GDP growth by 0.22%, and killed 173,000 full-time jobs. Despite costly subsidies to make up for their losses, US farmers have taken a big hit.
What's more, Dollar says the tariffs have not only done little to damage China's economy; they’ve also encouraged the Chinese to shift their investment toward other countries and away from the US.
But it's a political gamble for Biden. Lifting the tariffs ahead of the November midterms would be a gift for Republicans, who’ll accuse the president of being soft on China, seemingly the only issue the GOP and Democrats can agree on these days.
Also, labor unions, very influential with the Dems, would rather keep the tariffs in place because removing them could lead to more US jobs being outsourced to China. Finally, Trade Representative Katherine Tai has warned that unilaterally lifting tariffs would take away critical US leverage in broader trade negotiations with China.
Still, Biden is desperate to fight inflation, and getting rid of the China tariffs could help. The question is how far the US president is willing to go.
A recent study by the Peterson Institute for International Economics shows that removing the China tariffs might ease inflation by one percentage point. That’s nothing to sneeze at, but it’ll take a bit of time for the effect to kick in.
The thing is, it seems Biden only wants to cut tariffs on some $10 billion worth of Chinese goods — barely 3% of the total. That won’t move the needle on inflation and is hardly worth the political pushback from Republicans and Big Labor.
"That's frankly nothing in the context of US trade or the US economy. [It] won't have any measurable effect," says Dollar. "It seems odd to be considering something that would really just be symbolic" and tantamount to "doing nothing at all."
And what does China have to say about all this? Not much, according to Eurasia Group's senior China analyst Michael Hirson.
"Among China’s foreign policy crowd, there is some degree of amusement that the tariffs have 'backfired' on the US," he explains. "For trade officials and Chinese firms, the possibility of lower tariffs is welcome news," although since the reduction will probably be only symbolic, this topic hasn’t been top of mind for Beijing.
If Biden were to lift all the tariffs, Hirson says China might respond by removing its own retaliatory tariffs, and perhaps offer to buy more American goods. But the Chinese won't do what Biden really wants from them on trade: to get rid of industrial subsidies for state-owned companies, which the US regards as unfair competition.
Would you ditch Trump's tariffs against China? Let us know here.This article comes to you from the Signal newsletter team of GZERO Media, a subsidiary of Eurasia Group that offers balanced, nonpartisan reporting, and analysis of foreign affairs. Subscribe to Signal today.
The Graphic Truth: Is the US-China trade war over?
Let's be clear: the US and China are not in a new Cold War. For some time, China hawks in the Trump and Biden administrations, along with members of Congress, have been pushing for the US economy to "decouple" from China, especially on tech. They have failed in many sectors. Despite political pressure in Washington, an ongoing trade war, and both countries preoccupied with domestic crises, the reality is that over the past two years the world's two largest economies have become more integrated — especially on global supply chains. We take a look at US-China annual trade levels since 2015.
China’s coming COVID crisis?
When Eurasia Group, our parent company, released its Top Risks report for 2022 on Monday, readers might have been surprised to see COVID at the very top of the list.
Yes, omicron has sent case and hospitalization numbers surging once again in dozens of countries, but the prevailing mood among many analysts has been positive. After all, this latest variant is thought to be less dangerous than previous COVID variants, and much of the developed world has been vaccinated (and boosted) with remarkably effective vaccines. Some have speculated that “Omicron is the beginning of the end” of the pandemic.
Unfortunately, optimism in the US and Europe stands on shakier ground in other regions. China, in particular, may be facing an especially rough year.
Poorer countries will continue to be hit hardest, in part because omicron increased demand for booster shots in the US and Europe will further delay the day when the most effective vaccines are widely available elsewhere. To date, just 8 percent of people in developing countries have received even one vaccine dose.
There will also be further economic damage as poorer governments take on more debt to spur recovery and political fallout as people lash out at their governments.
But the most provocative part of this 2022 COVID story – and the entire report – is Eurasia Group’s surprisingly dark view of what’s about to happen in China.
Beijing’s “zero COVID” policy was a major public health success story in 2020. As Americans, Europeans, Indians, and others struggled with surging numbers of deaths, overwhelmed hospitals, and political fury, the ability of China’s leaders to lock down millions of people and use cutting-edge surveillance technology like track-and-trace apps to enforce its restrictions sharply limited the numbers of infections and deaths. In 2021, China was forced to impose and enforce many more quarantines, but the policy held up relatively well.
But in 2022, argues Eurasia Group, China will face highly transmissible omicron with apparently less effective vaccines and far fewer people protected by antibodies created by previous infections. This year’s COVID outbreaks in China may not set records for deaths, but they will be larger, and “zero COVID” lockdowns will be more severe and involve tens of millions more people. This crisis will continue until China can roll out domestically developed mRNA shots and boosters for its 1.4 billion people, which still appears at least a year away.
That, according to Eurasia Group, will mean a lot more economic disruption and maybe rising public anger – at a time when President Xi Jinping wants to formally extend his time as leader and roll out more reforms designed to maintain and extend the state’s reach into daily life across the country.
Eurasia Group’s call will be controversial – and might well be proven wrong. After all, there’s still uncertainty about omicron and the ability of China’s existing vaccines to prevent serious illness. The government might try to relax the zero COVID policy and effectively hide the fallout. More to the point, China has proven for decades that its authoritarian political system creates a degree of political control we don’t see in other major countries, either democracies or other authoritarian states. As China becomes much more technologically innovative, its government and public security have ever-more-effective tools to maintain that control.
But if China really is in for a rough ride, outsiders should resist any temptation to gloat. After all, China is still the world’s primary engine for global growth, and shuttered factories, more global supply chain disruptions, canceled flights, and lower demand for the rest of the world’s exports will be bad news just about everywhere.
- What is China's zero COVID policy? - GZERO Media ›
- How China decides to handle omicron will have global implications – Yanzhong Huang - GZERO Media ›
- China isn't budging on zero-COVID - GZERO Media ›
- China's year of unpredictability - GZERO Media ›
- China's big problem isn’t Ukraine — it’s COVID - GZERO Media ›
- The problem with China’s Zero COVID strategy | GZERO World Podcast - GZERO Media ›
China sends sanctioned official to AmCham dinner
BEIJING • In a show of defiance, Beijing sent a top official sanctioned by the US to an annual dinner hosted by the American Chamber of Commerce (AmCham) in Beijing.
US will need Japan more as tensions with China rise, says PM Suga's foreign policy adviser
TOKYO (BLOOMBERG) - Friction between the United States and China means Washington will need Japan more than before, regardless of who wins the presidential election, according to a foreign policy adviser to Prime Minister Yoshihide Suga.
How the US-China relationship would change under a “President Biden”
"Instead of simply embracing China, we have to draw clear lines about where China can legitimately pursue its interests and where we are going to push back." According to Anne-Marie Slaughter, who was a top State Department official under President Obama, a President Biden would do well to avoid blaming Beijing for the pandemic. There will be plenty else, aside from pointing fingers, for the two countries to worry about. She talks to Ian Bremmer on GZERO World.
Watch the episode: How a "President Biden" could reshape US foreign policy