China knows who’s tough
Apersistent theme in Republican campaigning these past few years has been the effort to portray Democrats in general and President Joe Biden in particular as being soft on Red China—in contrast to Donald Trump’s supposed toughness.
One of the major planks in the GOP case against Biden’s China policies was that he was showing his softness by not banning TikTok. This looks ironic now since Trump, who had favored a ban, suddenly reversed his position, reportedly around the same time that he had a sit-down with a billionaire who donates to Republican campaigns and has a large stake in the Chinese-controlled company.
Even before his TikTok flip-flop, however, the reality was that while Trump talked a xenophobic line that shaded into racism—for example, trying to re-label covid-19 as the “Chinese virus”—and imposed showy but ineffective tariffs, he never had a coherent strategy for confronting our biggest rival. Biden, on the other hand, has quietly taken a very tough line on trade, especially with China.
I’ve been pointing out for a while that Biden’s sophisticated economic nationalism is a very big deal, much more so than Trump’s protectionist thrashing. Biden’s policies are so tough on China that, while I support them, they make me a bit nervous.
In case you don’t believe what I’m saying, let me point to someone who apparently agrees with me: the Chinese government.
China just filed a complaint with the World Trade Organization about the Inflation Reduction Act, which despite its name is at its core an attempt to fight climate change by subsidizing the transition to a low-emission economy. Specifically, China complained about electric vehicle subsidies that it says unfairly discriminate against production using car battery components made in China.
I didn’t see that coming. America’s new industrial policy does favor domestic production and—we’ll see—might be in violation of WTO rules. But for China, of all countries, to complain about targeted subsidies is an act of colossal chutzpah.
China spends vast sums on subsidies for favored companies, far more so than any other major economy. And it has often engaged in blatantly discriminatory policy—for several years until 2019, non-Chinese companies were essentially prevented from supplying electric vehicle batteries to Chinese car manufacturers.
It’s also unclear what China hopes to achieve with this complaint. In 2022, the WTO ruled that U.S. tariffs on steel and aluminum, imposed under Trump but retained under Biden, were illegitimate. The Biden administration responded by, in effect, telling the organization to take a hike.
What is the Chinese government really doing here? It’s possible there’s some deeper strategy at play, although I have no idea what that might be. A more likely explanation is that Chinese officials are simply lashing out—perhaps in response to demands from the top that they do something—because they’re feeling the pressure from Biden’s policies.
These policies go far beyond electric vehicle subsidies, although they are the current flashpoint. The U.S. is also promoting semiconductor production, in part to reduce dependence on China. And the Biden administration has imposed stiff limits on technology exports to China, with the clear goal of crimping Chinese technological progress in advanced semiconductors and computing.
Biden’s China policy is so tough that it makes me, who generally favors a rules-based system, nervous although unlike many economists—who don’t fully grasp how the world has changed—believe it’s the right approach.
It’s understandable that all of this seems to make China’s leaders angry. That’s OK. It suggests that Biden’s approach is working.
And when it comes to domestic politics, note the contrast. Trump made a big show of taking on China, but he was ineffective when in office and appears to have folded on TikTok when donor money was at stake. Biden talks more softly but is wielding a really big stick.
Trump isn’t actually a tough guy on China; he just plays one on TV. Biden is the real deal.
This won’t stop Republicans from claiming that Biden is soft on China. He isn’t. And by filing this complaint with the WTO, the Chinese government has demonstrated that it knows what’s really going on.