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Biden’s plans to cool Trump’s trade war with China

Yahoo! Finance logo Yahoo! Finance 10/5/2021 Rick Newman

On paper, the Biden administration is keeping in place the tariffs on imports and other protectionist measures Donald Trump imposed on China during his one-term presidency. But Biden is also hinting at deescalating Trump’s trade war and opening the door to better relations with the world’s second-largest economy—if China does its part.

The Biden administration has announced a “new approach” toward China that has much in common with the old approach under Trump. Biden will keep in place the Trump tariffs on about $360 billion worth of Chinese imports, and hold China to the “phase one” trade deal of 2019, which requires China to sharply increase purchases of U.S. exports. The Biden policy also calls out China’s rampant theft of western technology, along with state funding for Chinese megacompanies that gives them an unfair competitive advantage in global markets. Biden could seek ways to punish China for those abuses, including new anti-China alliances that could be more effective than Trump’s go-it-alone approach.

None of that is a surprise, however. Biden never said he’d reverse the Trump tariffs, and China’s increasing belligerence under President Xi Jinping has left China with few friends in either the Democratic or Republican party. Trump deserves credit for confronting Chinese trade abuses in a way that may have reset U.S. policy toward China for years to come, with no return to the more tolerant stance of pre-Trump presidents.

Chinese President Xi Jinping sings the national anthem during a reception at the Great Hall of the People on the eve of China's National Day in Beijing on September 30, 2021. (Photo by GREG BAKER/AFP via Getty Images) © Provided by Yahoo! Finance Chinese President Xi Jinping sings the national anthem during a reception at the Great Hall of the People on the eve of China's National Day in Beijing on September 30, 2021. (Photo by GREG BAKER/AFP via Getty Images)

Exclusions ease the sting of tariffs

Biden may be establishing off-ramps, however, that could lower trade barriers between the two powers, eventually. Biden will re-establish an “exclusion” process that expired under Trump and allowed some U.S. importers to apply to the U.S. government for exemptions from tariffs. Under Trump, U.S. importers submitted as many as 53,000 exclusion requests, according to the Government Accounting Office. The Trump administration only approved about 13% of them, and some of those were temporary exemptions that expired before the whole process ended in the final days of the Trump administration.

Biden hasn’t spelled out how generous his administration’s exclusion process will be, but if used extensively it could become the norm rather than the exception. China has a similar process, for Chinese companies paying higher tariffs on U.S. imports, which China imposed in retaliation for the Trump tariffs. Exclusions could allow both countries to ease the sting of tariffs while technically keeping tariffs in place.

Case-by-case exclusions tend to be bad policy, because they allow the government to favor some companies over others on terms that can seem arbitrary or subjective. But for Biden, they may be a necessary evil, given that many economists think the Trump tariffs harmed the U.S. economy more than they helped. It would be politically unpopular for Biden to simply repeal the tariffs, opening him up to “soft on China” demagoguery. Aggressive use of exclusions would be a way around that.

Recoupling, not decoupling

U.S. Trade Representative Katherine Tai makes speaks at the beginning of the "Workforce Management into. Tech Jobs" roundtable during the inaugural meeting of the U.S.-EU Trade and Technology Council (TTC) at the Hazelwood Green Mill 19 building, Sept. 29, 2021, in Pittsburgh. (AP Photo/Rebecca Droke) © Provided by Yahoo! Finance U.S. Trade Representative Katherine Tai makes speaks at the beginning of the "Workforce Management into. Tech Jobs" roundtable during the inaugural meeting of the U.S.-EU Trade and Technology Council (TTC) at the Hazelwood Green Mill 19 building, Sept. 29, 2021, in Pittsburgh. (AP Photo/Rebecca Droke)

Any easing of trade restrictions would undoubtedly require Chinese concessions. In an Oct. 4 presentation at the Center for Strategic and International Studies, U.S. Trade Representative Katherine Tai said progress with China “will depend on how the conversation goes. We will examine China’s performance, have that full conversation with China, while raising our concerns about the larger industrial policy mismatch and the impacts on our economies.”

When asked if the Biden administration sought “decoupling”—a permanent separation of key supply chains—Tai said, “I don’t think that’s a realistic outcome. The issue perhaps is, what are the goals we’re looking for in a kind of recoupling?”

That rhetoric is more upbeat than anything out of the Trump administration. “Decoupling has been a very great concern for China,” said Tu Xinquan, dean of the China Institute for WTO Studies, during an Oct. 5 online forum. “Recoupling would be positive for the U.S.-China trade relationship. The exclusion process, if this could be started soon, it would be good for exporters and importers.”

Many flash points remain. After 30 years of anything-goes capitalism in China, President Xi seems to be changing the rules to harness even more economic power for the Communist Party’s nationalist goals. China has military ambitions as well, overtly threatening Taiwan in recent days and consistently antagonizing other Asian nations. Xi envisions China as a world superpower equivalent to the United States and may not be willing to make the concessions Biden would demand to lower trade barriers.

An aerial view of Caterpillar engineering vehicles waiting to be exported in a port in Yantai in east China's Shandong province Sep. 22, 2021. (Photo credit should read Feature China/Barcroft Media via Getty Images) © Provided by Yahoo! Finance An aerial view of Caterpillar engineering vehicles waiting to be exported in a port in Yantai in east China's Shandong province Sep. 22, 2021. (Photo credit should read Feature China/Barcroft Media via Getty Images)

Tai’s remarks on Oct. 4 were generally vague and noncommittal, and she acknowledged trade relations with China could get worse rather than better. China has not met the purchase targets in the 2019 “phase one” deal, and while the Covid pandemic explains part of that, China was behind even before Covid. If China is deliberately undermining the 2019 Trump deal, Biden won’t be able to ease tensions much, if at all. Biden isn’t the bomb-thrower Trump was, but he won’t extinguish the fuse if China keeps re-lighting it.

Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.

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