Time for US to turn the page
About one year ago, on Dec 21, 2020, I wrote an article, titled “Time to Turn the Page”, in anticipation of improved ChinaUS trade relations following Joe Biden’s election as US president. Disappointingly, even almost one year into Biden’s presidency, this has not happened.
Joe Biden and President Xi Jinping held a virtual summit on Nov 16 and set a framework and guideline for bilateral relations. Intensive dialogue at the ministerial level also took place in 2021, all of which were constructive. But there has been little change in the United States’ actions — and hence little easing of tensions.
Biden continues with containment policy
The Biden administration has maintained the high tariffs on $370 billion of Chinese goods ignoring the demands of China and US citizens for their removal.
In fact, US Treasury Secretary Janet Yellen, no less, has emphasized that the tariffs are not the right solution and only hurt the US economy. Also, the US business community’s call for scrapping the tariffs has been mounting.
But the US trade representative has not revoked them, only accelerated the tariff exclusion process.
The unilateral sanctions and restrictions on high-tech trade intensified in the second half of 2021. US lawmakers passed the Telecommunication Equipment Safety Act on Oct 29 to tighten restrictions on Chinese high-tech giants Huawei and ZTE. And the Federal Communications Commission published a list of equipment and services that it said pose a threat to national security and terminated China Telecom America’s permit to provide services in the US.
On Nov 24, the US Commerce Department announced sanctions on 12 Chinese high-tech companies in the fields of artificial intelligence, big data, semiconductor chips and quantum computing, followed by another set of sanctions on Dec 16 on 34 companies.
Besides, Biden has skillfully aligned US allies to contain China. And his administration hosted the QUAD Summit and formed AUKUS (a security alliance among Australia, the United Kingdom and the US) to propel its IndoPacific strategy.
At the G7 Summit in Cornwall, Britain, in late June, 2021, Biden announced the “Build Back Better World Initiative” to counter the China-proposed Belt and Road Initiative, with the EU-US Summit that followed establishing the Trade and Technology Council to check China’s trade and technological development by aligning the two economies’ supply chains of semiconductor chips and other leading technologies with countries “sharing the same values”.
And recently, US Commerce Secretary Gina Raimondo toured Southeast Asia to strengthen the Indo-Pacific economic framework, in order to contain China.
Global trade has been increasingly hijacked by the Western powers’ political and ideological motives. The US Senate passed an act to ban imports from China’s Xinjiang Uygur autonomous region on its fabricated rumor pretext that China uses “forced labor” in the region to produce goods.
US actions have worsened relations
These developments that have worsened China-US ties reveal two distinguishing features of the Biden administration’s China trade policy. The US’ trade policy is guided by its stated core values of “democracy” and “human rights”. The US assumes that China, since it is led by the Communist Party of China, has completely different core values. In short, the US sees China as a threat to its national security that must be countered.
The second feature is the US’ orientation toward hegemony. It cannot digest the fact that China’s economy has been edging closer to that of the US (China’s GDP in 2021 will be roughly 75 percent of the US), and that China’s high-tech growth is challenging US dominance. Worse, anti-China positions have become politically correct in the US’ domestic political ecology.
Anti-China policies, however, have failed to check bilateral trade, which, ironically, has been booming. According to Chinese customs data, the bilateral trade volume in the first 11 months of 2021 increased by 30.2 percent over the same period a year ago, and by 7.7 percent over the whole of 2018, the previous record, before former US president Donald Trump launched the trade war.
The bilateral trade volume for the whole of 2021 could reach $750 billion compared with $633.5 billion in 2018, the previous record. For the record, Chinese exports to the US are likely up by more than $90 billion, and imports by $25 billion. And the first 11 months saw an increase in China’s inward foreign direct investment — up 21.4 percent year-on-year to $157.2 billion.
The restrictions on high-tech trade (semiconductor chips, in particular) have also made little difference. During the first 10 months of 2021, Chinese domestic output of chips increased by 22.2 percent year-on-year. And the first 11 months of 2021 saw chip exports rise by 34 percent, with imports up 23.4 percent. Also, China’s global share in chips continues to rise rapidly.
A recent study by the Belfer Center of the Kennedy School at Harvard University found that China has overtaken the US in artificial intelligence, 5G and quantum computing. China has six times the number of papers on AI than the US. It also has 87 percent of the world’s 5G stations and two of the world’s top five 5G technology suppliers. The US has zero.
And the Semiconductor Industry Association (US) estimates that China will become the world’s largest chip supplier, accounting for 40 percent of the global market by 2030.
The US’ attempt to rally its allies to contain China has yielded lackluster results, because in the first three quarters of 2021, the China-ASEAN trade volume reached $630.54 billion, while the US-ASEAN trade volume was only $278.81 billion. Over the past three years, China-ASEAN trade increased by 45.3 percent, while US-ASEAN trade rose by 34.1 percent.
China-ASEAN trade was 2.26 times higher than US-ASEAN trade in the first three quarters of 2021, compared with 2.15 times three years ago. And while China-EU trade expanded by 33.8 percent during this period, US-EU trade grew by a paltry 8.2 percent.
Moreover, the Regional Comprehensive Economic Partnership agreement, which took effect on Jan 1, accounts for 30 percent of world trade and has China, the 10 members of the Association of Southeast Asian Nations, Japan, the Republic of Korea, Australia and New Zealand, but not the US. The RCEP is the world’s largest free trade agreement.
Washington should change its wrong policy
Which means Washington’s containment policy is not working. Why?
The US’ first mistake is that it has set the wrong strategic goal. It sees China as a threat to its geopolitical, economic and military dominance. When the fact is, China is not a threat. The real problem is US hegemony. The world order is based on multilateralism with the United Nations and the UN Charter at the core, not on the dominance of a single country.
China pursues economic growth to improve the livelihoods of its 1.4 billion people, not for displacing the US in the global market. Even if China’s per capita GDP reaches $20,000 and hence its total GDP $28 trillion, 33 percent more than the US’ current GDP, its per capita GDP will still be lower than the threshold of OECD member economies and only 30 percent of the US. So where’s the threat?
The US’ second mistake is its total neglect of global economic laws. Both the Chinese and US economies operate on the basis of global supply chains, which depend on effective allocation of global resources, capital, technology, market and talents. The global supply chains follow only economic laws, not the will of any government.
Both China and the US need the clarity of hindsight to learn key lessons before looking forward to realistic, feasible ways to manage differences and promote cooperation.
Both governments need to set concrete guidelines for peaceful coexistence, as agreed by Xi and Biden during their virtual summit. For that, the two sides need to abide by five principles: mutual respect for sovereignty and territorial integrity, non-aggression, non-interference in internal affairs, equality, and mutual benefits.
Thus, the US should not try to check China and instead work with it for the benefit of both sides and the rest of the world. It should not challenge China over the Taiwan question either, as the island is an integral part of China. Nor should it challenge China over Xinjiang, which is China’s internal affair. Based on equality and mutual benefit, trade issues should be delinked from politics.
Moreover, the trade teams of both governments should start serious, substantive consultations to identify the strategic and practical issues. The two sides should form various study groups which can conduct a thorough study of the major problems and concerns and find common grounds for cooperation and collaboration, and give feasible proposals on which they can act. And the US must lift the punitive tariffs on Chinese goods.
Also, industry associations and chambers of commerce in both countries should set up joint working groups covering AI, 5G, semiconductors, quantum computing and cybersecurity to develop feasible proposals aimed at resolving issues of cooperation and security. The purpose of such endeavors should be to build up open, equal, mutually beneficial China-US supply chains.
And sub-national cooperation, especially between the US states and Chinese provinces, should be encouraged, and it should include climate change, alternate energy, AI, cross-border e-commerce, 5G, agriculture, biotechnology and capital markets.
Hopefully, both governments and business communities will make constructive efforts in 2022 to seek new ways to ease the tensions and stabilize relations between the world’s two largest economies in the years ahead.