The U.S.-China Trade War Isn’t Over Yet

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By Alex Kimani

When former U.S. President Donald Trump ascended into the Oval Office in January 2017, he kicked off his presidency by investigating unfair trade practices in China as part of his ‘America First’ policy. A year later, he imposed hefty tariffs on a wide range of goods from the Asian nation, sparking outrage and retaliatory tariffs from its trading partners.  A year ago, Washington and Beijing inked the Phase One Trade Deal whereby Beijing committed to importing an extra $200 billion worth of American goods over the next two years, including purchasing an extra $52.4 billion of U.S. energy supplies from a baseline of just $9.1 billion in 2017.

But observers who have been hoping the new administration will mark a return to normalcy on trade issues after the drama of tariff battles and tweet diplomacy of the Trump-era will be sorely disappointed.

Two weeks ago, the new U.S. trade representative, Katherine Tai, said all American tariffs will stay in place–at least for now.

In other words, the U.S.-China cold war remains alive and well despite a change of guard.

What does it mean for the U.S. energy sector? Probably not much, considering that China has been doing little to honor the deal anyway, conveniently using the global pandemic as an excuse to abscond from its responsibilities.

Back in August, Reuters reported that whereas crude oil was supposed to feature prominently in the Phase 1 deal, China imported only 45,603 barrels per day (bpd) of U.S. oil during the first half of the year, or about half of 85,453 bpd it imported during the previous year’s corresponding period. Wood Mac’s Sushant Gupta reckons that China needed to import 1.5 million bpd of U.S. crude in 2020 and 2021 just to fulfill its commitments, meaning China is barely scratching the surface.

Poisoned chalice The United States currently maintains tariffs on $370 billion worth of Chinese goods even after signing the phase one trade deal. Will the Biden administration remove these tariffs? Absolutely not–at least for the time being.

The big difference between the two regimes, however, is that whereas Trump instigated the trade war, Joe Biden will merely be forced to continue it not necessarily because he wants to but rather because it’s going to be a herculean task ending the wide-ranging areas of competition between the world’s leading economic powerhouses.

In effect, Biden has inherited a poisoned chalice.

Indeed, the level of mutual competition, containment, and challenge between the U.S. and China at this point greatly supersedes any level of cooperation. After all, global economic leadership is at stake here, with the winner of this tussle of values and political systems likely to gain the upper hand. The Biden administration will continue to seek leverage on China using the trade war whether in terms of enforcing “structural changes” in China’s economy for fairer competition or preventing technology transfer that could have military applications.

For starters, the Biden administration will be reluctant to remove additional tariffs on Chinese goods considering the fact that Washington has been pressing Beijing to undergo “structural changes.”

It’s quite telling that the Biden administration views economic and trade relations between the two nations pretty much the same way the Trump administration did. Biden has criticized China for the same things that Trump did: Unfair trade practices, including state-owned enterprises’ abuse of power, currency manipulation, unfair subsidies, anti-competitive dumping, overcapacity, intellectual property theft, and state-sponsored cyber espionage.

Newly elected US Secretary of State Antony Blinken  has asserted that Trump was right in adopting a tougher stance on China, while Commerce Secretary Gina Raimondo has echoed similar sentiments declaring that the U.S. must “take aggressive trade enforcement actions to combat unfair trade practices from China and other nations that undercut American manufacturing.”

You don’t have to look very far to find an instance of Beijing’s blatant abuse of power: The recent Xinjiang Controversy.

Nike (NYSE:NKE), H&M (OTCPK;HNNMY), Adidas (OTCQX:ADDY), and Skechers (NYSE:SKX), among other brands, are caught up in a bitter conflict over Xinjiang after several Western governments imposed sanctions on officials based on accusations of labor abuses. Beijing has ratcheted up pressure on foreign shoe and clothing brands to reject reports of abuses in Xinjiang.

Chinese state media has called for a boycott of H&M for saying it would no longer use cotton from Xinjiang resulting in H&M, Nike, and Adidas merchandise disappearing from major Chinese e-commerce platforms.

The Biden administration is also highly unlikely to end the war of technology that has been waged for years. A report titled “Artificial Intelligence and National Security” (released in August 2020 and updated in November 2020) by the US Congressional Research Service noted that China is the United States’ biggest competitor in cutting-edge military technology such as AI and quantum computing. The report added that military AI applications could be used to aid military objectives and for counter-espionage.

Two years ago, the Washington Post reported that Huawei had been secretly building and maintaining North Korea’s commercial wireless network, providing the country with antennas, base stations, and other critical mobile equipment. Further, the company also provided network integration, software, and expansion services for North Korean telecoms provider Koryolink. According to the report, Huawei partnered with Chinese state-owned firm Panda International Information Technology Co. Ltd on a number of telecom projects in North Korea over an eight-year span, leading to U.S. companies being banned from doing business with Huawei on account of being a national security threat.

Multilateral approach

However, unlike his predecessor, Biden is much more willing to cooperate with America’s trade and economic partners when dealing with China.

In his economic and trade plan unveiled in July, Biden said that his administration will not only rally its allies to force China to play by the rules but will also hold them to account if they fail to do so. In particular, Biden wants America’s allies to pressure Beijing to stop its unfair trade practices and also put an end to its rampant intellectual property theft.

When it comes to resolving the China-US trade war, Biden plans to use the same approach by first consulting with major allies such as the EU before taking action after reaching a consensus.

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