US Trade Representative Katherine Tai speaks at the Center for Strategic and International Studies in Washington on October 4. She failed to dispel concerns that the US might launch a probe into Chinese industrial subsidies, which could lead to more tariffs. Photo: Bloomberg
Adriel Kasonta
Adriel Kasonta

US-China trade war: when will the Biden White House get back to basic economics?

  • The trade war has its roots in Donald Trump’s wrong-headed obsession with trade deficits
  • Worryingly, under Biden, the US trade strategy on China continues to disappoint American business. It’s time to ditch the tariffs
In January 2020, just before the coronavirus pandemic disrupted lives worldwide and significantly affected global economic growth, the US, under president Donald Trump, signed a “phase one” trade agreement with China.

The result was partial containment of a fierce trade struggle between the world’s two largest economies. Beijing agreed to buy at least US$200 billion more in US goods and services in 2020 and 2021, compared to 2017 levels, and on top of the US export numbers in the same year.

In particular, China was obliged to purchase US$77 billion in additional goods and services in the first year of the deal and US$123 billion in the following year to meet the agreed amount. It is worth noting that, in 2017, China purchased US$186 billion of US goods and services.

In practice, in the first half of this year, Chinese purchases of US exports rose to US$87.94 billion, up 55.5 per cent from the same period last year and up almost 49.3 per cent from the first six months of 2019. On the other hand, the US imported US$252.86 billion worth of goods from China in the first half of this year, increases of 42.6 per cent and 26.8 per cent from the respective periods in 2020 and 2019.

Although trade between the two countries has visibly grown despite ongoing tensions, Chinese purchases of US goods are still falling short of the agreed amount.

According to data gathered by the Peterson Institute for International Economics’ senior fellow Chad P. Brown, Beijing only reached 62 per cent of the phase one target in August this year, and its trade surplus with Washington rose further, to US$37.68 billion in the same month, based on Reuters calculations of the customs data.

The US-China trade war has its roots in Trump’s obsession with bilateral trade deficits, which led him to impose tariffs on billions of dollars worth of Chinese goods, and bilateral tensions have since spread, like a virus, to the technology and finance sectors.
However, even with Joe Biden in the White House, Washington has shown no desire to abandon the Trump-era trade tariffs and sanctions on Chinese tech companies such as Huawei. Indeed, Biden has managed to rub more salt in the wound that is the US-China relationship, by expanding a ban on US investment in Chinese companies.

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Many US industries have become impatient with US Trade Representative Katherine Tai’s “top-to-bottom” review of Washington’s trade policy towards China, and especially with the lack of specifics of trade negotiations or timing.
Speaking at the Center for Strategic and International Studies on October 4, she said the administration would consider exempting some goods from tariffs. But she failed to dispel concerns that she might still launch a section 301 investigation into Chinese industrial subsidies, which could then lead to more tariffs on Chinese goods.

David French, senior vice-president of the National Retail Federation, said of Tai’s remarks: “Today’s long-awaited announcement proved the Biden administration’s trade strategy on China to be lacklustre at most, and will further inflict unnecessary damage to the American economy and retail supply chains.”

Interestingly, according to a recent survey conducted by the American Chamber of Commerce in China, 47 per cent of its members demand the removal of the tariffs on Chinese goods, with more than three-quarters of companies complaining that measures imposed during the US-China trade war were affecting their operations.

Back in August, more than 30 US business groups – including the US Chamber of Commerce, the American Farm Bureau Federation and the Semiconductor Industry Association – also called on the Biden administration to cut the tariffs, which they believed were harming the US economy.

In virtual talks between the US and China on October 8, Chinese vice-premier Liu He negotiated with Tai for the cancellation of the tariffs and sanctions on China, according to the Chinese commerce ministry.

It is well known that too much emphasis on trade deficits is misleading in assessing the state of an economy. Moreover, the US trade deficits are predominantly driven by soaring budget deficits.

According to Xinhua, both sides agreed in the virtual talks to “create the conditions for the healthy development of economic and trade relations between the two countries and the recovery of the world economy”. With that in mind, Tai would be well advised to abandon counterproductive, politically driven trade measures.

Adriel Kasonta is a London-based political risk consultant and lawyer, and a graduate of London School of Economics and Political Science (LSE)