Biden's Trade War
Worrisome implications of Biden's latest tariff actions on China
Trump started it, but Biden now owns it. For a president determined to avoid the quagmire of “forever wars,” Joe Biden’s latest escalation of the now six-year-old Sino-American trade war is especially striking. A new round of tariffs underscores a potentially dangerous chapter in US international economic policy, replete with unintended consequences for the United States, China, and the world at large.
From an arithmetic perspective, the impacts of these tariffs seem more like a rounding error. But that’s not the point. Yes, extremely sharp increases have been announced for US tariffs on Chinese-made electric vehicles, semiconductors, and solar cells, along with significant hikes in existing tariffs on eleven other strategic items — ranging from lithium batteries and magnets to loading cranes and medical supplies. But collectively, the new tariffs cover just $18-billion of Chinese-made products, or 0.6%, of total US goods imports. Similarly, they only account for 4% of China’s current exports to the US, or 0.5% of total Chinese exports. And they are staged to take effect on a staggered basis over the next couple of years. So why worry?
For starters, these actions are a direct affront to Xi Jinping. They are aimed at Xi’s favorite new development initiative — a technology-led industrial upgrading that he believes can drive the economic growth of China’s so-called new productive forces. Unlike Trump’s broad-based moves six years ago, Biden’s latest tariffs are focused on three of the most important targets of China’s latest strategic initiative — electric vehicles, solar, and batteries. With these actions, the US is not just pouring salt on the wounds of an already weakened Chinese economy. For Xi Jinping, who has staked his reputation on China’s new growth strategy, Joe Biden’s latest assault on the trade front is personal.
Secondly, the Biden Administration is justifying the latest actions against China in a fashion quite similar to that used by the Trump Administration in 2018. In both instances, allegations of unfair Chinese trading practices were couched as so-called Section 301 violations of the US Trade Act of 1974. Until Robert Lighthizer came along, Section 301 was rarely used in trade enforcement actions. But that was his lever against Japan in the late 1980s as Deputy US Trade Representative (USTR) in the Reagan Administration and then against China as head of the USTR under Trump. And now it is Katherine Tai’s playbook as USTR in the Biden Administration. Both reports — Lighthizer’s of 2018 and Tai’s of 2024 — allege that unfair Chinese trading practices stem from forced technology transfer, intellectual property theft, state-subsidized industrial policies, and espionage directed at America’s most innovative industries. Both reports have another unfortunate feature in common — they draw on flawed studies, weak circumstantial evidence, and exaggerated rhetoric to make what is basically a political case.
In my latest book, Accidental Conflict, I detailed this weakness in the Lighthizer report of 2018 (see Chapter 4, “Bilateral Bluster”). Like her predecessor, Katherine Tai features technology transfer as the poster child for unfair Chinese trading practices. For Lighthizer, the transfer was alleged to be forced, even though the purported coercion supposedly occurred between two partners — a US firm and a Chinese firm — that had voluntarily entered into a joint venture. Tai largely backs away from the forcing aspect of technology transfer and relies instead on a large body of circumstantial evidence that describes sharp increases in cyber intrusions by Chinese actors. Yet in no instance does this latest Section 301 report come close to tying these broad hyperbolic comments on cyberhacking to the product-specific focus of the new tariffs. Nor is any consideration given to the possibility that China might just excel at producing state-of-the-art electric vehicles, high-speed trains, solar panels, batteries, and so on. Some might even call that comparative advantage.
Lastly, these new tariffs formalize the recent politicized epidemic of Sinophobia that has taken America by storm. I have detailed my concerns about this earlier, emphasizing the McCarthyesque tendencies of the new House Select Committee on China, as well as exaggerated claims of data privacy risks of TikTok, Chinese made construction and dock-loading cranes, and Chinese electric vehicles, as well as fear mongering by FBI Director Christopher Wray that America’s utility infrastructure is now in grave peril. These allegations all have one thing in common — they are based on circumstantial evidence, at best, without any hard corroborating evidence of nefarious intent or smoking guns of action.
Tai’s Section 301 report takes the paranoia of Sinophobia one step further — into the hypocrisy over China’s State-sponsored industrial policies. Similar to Lighthizer’s allegations of 2018, the latest Section 301 report rolls out an updated laundry list of China’s industrial policy efforts — Made in China 2025, the 14th Five-Year Plan, the Dual Circulation framework, and the so-called Innovation-Driven Development Strategy. Without state support of these efforts, goes the argument, innovative Chinese products would not have come to market so quickly.
But there is an enormous difference in the industrial policy debate today: the US has now embraced the very strategy that it condemns China for. The Infrastructure Investment Act of 2021, the Chips and Sciences Act of 2022, and the green-energy initiatives of the Inflation Reduction Act of 2022 are all quintessential US industrial policy actions. The pot, in effect, is calling the kettle black! Vilifying a foreign competitor on the basis of circumstantial evidence, political bluster, and hypocrisy, all in conjunction with record lows of anti-China public opinion in the US, makes the current outbreak of Sinophobia every bit as bad as the Red baiting of the early 1950s.
The two Section 301 reports of each administration share another strikingly familiar flaw — no appreciation of the role that America, itself, plays in exposing its workers and industries to trade deficits that we automatically presume are visible manifestations of unfair trading practices. This gets to the key link between domestic saving and bilateral trade imbalances that I have droned on about for years: Saving-short nations like the United States are prone to large multilateral trade deficits. It follows that going after one piece of a trade deficit with 106 nations — precisely America’s failed approach to Japan in the late 1980s and the focus of today’s China bashing — is doomed to failure.
Tai comes a bit closer than Lighthizer in recognizing this important aspect of the problem, noting that “… the composition of U.S. trade is shifting away from China toward other partners.” In other words, the USTR is finally conceding that American workers benefit little, if at all, from policies that shift the Chinese portion of the US trade deficit to higher-cost producers elsewhere in the world. Hurray for Katherine Tai! Unfortunately, this concession is buried on page 82, near the end of her detailed report.
In Accidental Conflict, I warned in Chapter 7 (“From Trump to Biden — the Plot Thickens”) that the US-China trade war could well take a turn for the worse in the years ahead. Little did I know the full extent of what was to come. It’s not just the latest tariffs, the aggressive use of sanctions, the xenophobic outbreak of Sinophobia, or the direct affront to Xi Jinping’s latest growth strategy. The Biden Administration has also leaned heavily on America’s allies to join forces in a new “coalition of the willing” to protect our so-called small yard with a “high fence.” In an increasingly divided world, the China problem is now global in scope.
That gets to the biggest question of all — the endgame. What is Washington trying to accomplish through its trade war with China? Is the goal to promote the revitalization of a US manufacturing sector that has lost its comparative advantage in terms of labor costs, supply-chain support, new productive capacity, infrastructure, research and development, and scale? Or is the objective to contain China on all of those counts? Or both? The short lags of containment versus the far longer lags of revitalization underscore the asymmetry of these considerations — and the related possibility that resolution deferred spells intensified and prolonged conflict in the meantime.
The US political season is now in full swing. Rhetoric and policy actions are often influenced by political considerations. Just as President Biden did to President Trump, candidate Trump has already upped the ante on Biden’s trade war. But predictable political bluster gives us no excuse to dismiss the very real risks of this new and dangerous phase of the US-China conflict. As before, China will probably retaliate through yet another round of reciprocal actions. And then what?