US-China relations: Biden must act on his window of opportunity on trade

If Biden really wants to deal with ‘serious competitor’ China, multilateral commitments are essential, particularly before his powers to fast-track trade deals end in July
China also has a chance to show willingness to cooperate on Covid-19, climate action and the global recession, which could warm ties with the US

David Dodwell

Published: 11:00pm, 7 Feb 2021

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Conventional wisdom has it that international trade issues are a low priority for the new Biden administration in Washington. The megaphone priorities are bringing the vicious Covid-19 pandemic under control, tackling the recession and addressing the deep, racially driven schisms in US society.

No one is going to contradict these urgent priorities, but there are some issues and undercurrents that might – between now and July at least – defy conventional wisdom. Trade may figure more than people expect.

The driving forces behind this are likely to be the urgent obsession to “deal with” the China challenge, the imperative to repair badly damaged international relationships – in particular with traditional allies – and to bring to a firm halt the bilateralism so disastrously nurtured by Donald Trump. There can be no delaying international cooperation to bring Covid-19 under control, tackle the climate crisis and haul economies out of the global recession.

There are good reasons for President Joe Biden to be reluctant to give any priority to trade. First, it is not front of mind for US voters: why waste political capital on an issue not of burning concern to those who brought him to power last month?

03:05

Biden calls China the ‘most serious competitor’ to the US, in his first foreign policy address

Second, many Democrats are, to put it politely, deeply sceptical about the merits of liberal trade, blaming hundreds of US multinational companies for the past decade’s economic troubles, including rising unemployment and falling wages.

Third, it may be early summer before Biden wins Senate confirmation of Katherine Tai, his pick to lead the Office of the US Trade Representative. Until then, trade issues will have to be handled by Secretary of State Antony Blinken, who already has his hands full.

But several trade-related issues are cans that cannot easily be kicked down the road. If Biden’s claim to want to work with allies to tackle America’s “most serious competitor”, China, is to be credible, then clear, early multilateral commitments are essential.

Biden needs a new balance of equals in US-Asia policies

We have seen two significant steps in this direction: his decision to rejoin the Paris climate accord to ensure a lead role in preparing for the UN Climate Summit in Glasgow in November, and to “unblock” the appointment of Ngozi Okonjo-Iweala as the World Trade Organisation (WTO) director general. Trump’s solitary opposition to her candidacy had become a touchstone of his withdrawal and disengagement from friends and foes alike. Biden’s reversal was a quick, simple and painless way of declaring to the world that the United States is back.

Perhaps the biggest single factor forcing Biden to move more quickly on certain trade issues is the expiry in July of the president’s trade promotion authority, which allows him to make trade deals without pre-approval from Congress.

Nigeria’s former foreign and finance minister Ngozi Okonjo-Iweala attends a hearing at the WTO in Geneva in July last year. The Biden administrative has voiced its support for Okonjo-Iweala’s bid to lead the global body. Photo: AFP

Winning fresh approval to extend this power has always been slow and controversial, in particular with many anti-trade Democrats, and Biden will not want to expend so much political capital on a contentious and marginal priority so early in his presidency. This leaves Biden with a fragile and complex window of opportunity on trade issues between now and July.

Biden has made clear that “our trade policy has to start at home”, in particular with America’s middle classes – which means developing skills, strengthening health care, better-targeted research and development, significant infrastructure-building, improving broadband across the country, and engaging in tax reform. He is looking for new trade rules and processes, and deals that include the concerns of labour and the environment.

Biden’s flurry of executive orders show his priorities for US economy

He has put down some optically symbolic markers on his “start at home” commitment. He made new and clearly protectionist “Buy American” commitments two weeks ago, and has also made it clear that Trump’s tariffs (in particular those on China) are not going to be lifted any time soon, no matter how costly they have been to US companies and consumers. Keeping “leverage” on China remains important.

And his anti-China rhetoric remains strong, despite the likelihood of close (but quiet) cooperation with China on climate challenges, containing the Covid-19 pandemic, and rebuilding from the deep recession. Herein is a single but potentially important seed of optimism for Beijing: while the anti-China drumbeat will remain strong, discrete progress on these three critical challenges can do much to heal wounds and rebuild foundations for more normal US-China relations.

01:04

Biden to approach US-China relations with ‘patience’, says White House

A Peterson Institute report last month defined three tiers of priority for this short window of opportunity: immediate, important and under the radar. The “immediate” will be symbolic high-profile initiatives such as re-engagement with the WTO, providing climate leadership at the UN Climate Change Conference and staying tough on China.

Re-engagement in the Pacific with the 11-economy Comprehensive and Progressive Agreement for Trans-Pacific Partnership might also fall into this category, not only to reverse Trump’s withdrawal, but also to frustrate China’s recently-declared interest in membership.

The “important” tier includes many long-standing disputes that defy early resolution, such as the Airbus-Boeing dispute with the European Union, digital services taxes and carbon border taxes. Biden is likely to adopt a containment strategy, without any intention to seek early breakthroughs.

Joe Biden opens door to era of possibilities in relationship between America and China

The “under-the-radar” initiatives are likely to make progress but remain largely unnoticed. This could mean tightly contained, small-group trade initiatives such as an e-commerce deal with a group of like-minded economies, or the WTO “joint statement initiatives” focused on subsidies and how to deal with state-owned enterprises.

This means that big-ticket, headline-grabbing issues are unlikely to make visible progress. These would include the ambitious but delayed US-EU investment agreement, or the “10-democracy alliance” supposedly aimed at containing China, or – to the chagrin of British Prime Minister Boris Johnson – the earnestly sought US-Britain free trade agreement. In blunt terms, these do not win votes, and Biden’s team has bigger fish to fry.

In sum, the window between now and July is not only important for the US to begin the process of rebuilding trust with allies, but also provides Beijing with a window of opportunity to avert further deterioration in their relations. For the first time in four years, there are perhaps some things to be hopeful about.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view