The Post-Election Outlook for U.S.-China Economic, Business, and Trading Relations

The Post-Election Outlook for U.S.-China Economic, Business, and Trading Relations

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America’s relationship with China, now often marked by tension, is likely to be reassessed under the incoming Biden administration. To discuss how U.S.-China relations may evolve, GLG recently met with China expert David Dollar, currently a Senior Fellow in the John L. Thornton China Center at the Brookings Institution. From 2009 to 2013, Dollar was the U.S. Treasury’s Economic and Financial Emissary to China based in Beijing, and earlier worked throughout Asia for the World Bank for 20 years. Edited highlights of the conversation follow.

To start, how might the Trump administration approach relations with China through this lame-duck period?

Overall, I wouldn’t be surprised if the administration tried to lock in various policies, particularly in the foreign policy arena. In the case of China, it’s not obvious what they could do except for a couple of potential big things that would be unusual for a lame duck. It’s possible they could sanction a big Chinese bank over its activities in Hong Kong, for example, or perhaps delist Chinese companies from U.S. stock markets. There is a legal basis for such moves, and President Trump has shown himself to be a disruptor, but it still would be highly unusual for a lame duck to take those steps.

How do you expect the Biden administration to approach relations with China? Do you think it will be more traditional and that the U.S. would work in a more multilateral fashion that might potentially be more potent in countering China?

That second question is really key to understanding what’s likely to be different in a Biden administration. The one word we keep hearing from Biden and his team is multilateral. He’s indicated he’ll rejoin the Paris Climate Accord and the World Health Organization and rebuild relations with allies in Europe and in the Asia-Pacific region. Frankly, I think that’s a smart approach for dealing with China. For example, the first time he goes to Asia, I wouldn’t be surprised if he visited only Japan, or maybe South Korea and Australia, who are traditional security allies and democracies. I would imagine he would deliberately avoid China. And he might just leave China waiting, in a sense, while he strengthens the U.S. position in the multilateral effort. Still, he’s going to have to deal with China on a range of issues, and in some ways his policy probably won’t be that different from the current administration since he’s not going to want to be perceived as friendly to China — but he’ll certainly bring a more multilateral and probably a more consistent and orderly approach to dealing with China.

Are there areas where you could foresee cooperation between a Biden administration and China?

Absolutely. Global issues are the key foundation for U.S.-China relations going forward. Both nations have a common interest in reducing carbon emissions and dealing with climate change. Another area: we’re probably going to see a new round of third-world debt crises coming out of the pandemic and the global recession. And in a lot of the developing world, countries are going to need IMF programs. That’s where the U.S. is still the dominant shareholder, but China is the biggest official creditor. Those countries are probably going to be looking for extensions or debt relief from China, and if the U.S. and China don’t work together, you’re probably going to have some suboptimal outcomes with unnecessary financial crises and bankruptcies. That work on global issues is what’s been missing in the Trump administration policy with China, and Biden certainly will be willing to work with China where we have common interests.

Concerning trade, President Trump was willing to use many trade enforcement mechanisms as part of his administration’s approach toward China. Do you expect similar tactics from the Biden administration?

Trade with China is going to be a very tricky area for Joe Biden. He’s not going to want to be perceived as soft on China or as going back to Obama-era policies, which were friendly toward China in the economic area. He’ll want to benefit from some of the things President Trump has done and continue some, but many of those actions have been inconsistent. Tariffs, for example, were rolled out in different ways, some starting at 10%, then going to 25%, and then some rolled back. Export restrictions also were inconsistent. The business community hates this kind of uncertainty.

I’m hoping the Biden administration can bring a scalpel to a set of issues rather than a sledgehammer. While he’s going to be careful with technology and security issues, I think he’s more inclined to value the general everyday trade and investment back-and-forth between the U.S. and China. It’ll be tricky, but there will be more room for trade and investment than we’ve seen the last few years.

How do you expect President-elect Biden to handle the World Trade Organization rule against the Section 301 tariffs that the Trump administration levied against China?

I think he will just ignore it. The ruling can’t be appealed because the appellate body has basically ground to a halt due to the U.S. not agreeing to appoint new appellate judges. That eventually will happen, but I don’t see him quickly removing all the tariffs against China because that opens him up to attack as being soft and giving something away for nothing.

As far as the underlying issue, he probably would negotiate with China to reduce some of the existing tariffs, but he’ll want something in return. And I don’t see it as anything he rushes into because he’s got all these domestic challenges that are going to eat up most of his time in the first six months or a year.

The U.S. Trade Promotion Authority, the time-limited rules that Congress uses to set trade negotiating objectives, is set to expire next summer. Is this something that’s top of mind in Washington?

No, it’s hardly noticed, but it’s an interesting issue. Trade promotion authority is pretty critical for actually getting trade deals negotiated and potentially passed. I don’t see Biden putting a lot of political capital into extending it because his team has made it clear they’re not going to go out and negotiate big trade agreements that would require TPA. But once he’s got a specific objective in mind, then I could see Biden using political capital to get the TPA.

About David Dollar

David Dollar is a Senior Fellow in the Foreign Policy and Global Economy and Development programs at the John L. Thornton China Center (the Brookings Institution). He is a leading expert on China’s economy and U.S.-China economic relations. From 2009 to 2013, he was the U.S. Treasury’s economic and financial emissary to China. In that capacity he facilitated the economic and financial policy dialogue between the U.S. and China. Based at the U.S. embassy in Beijing, Dollar served as Treasury’s eyes and ears on the ground and reported back to Washington on economic and policy developments in China. Dollar worked at the World Bank for 20 years, and from 2004 to 2009 was Country Director for China and Mongolia. His other World Bank assignments primarily focused on Asian economies, including South Korea, Vietnam, Cambodia, Thailand, Bangladesh, and India. From 1995 to 2004, Dollar worked in the World Bank’s research department.

This article is adapted from the November 10, 2020, teleconference “China and the 2020 Presidential Election: Outlook for Economic, Business, and Trading Relations.” If you would like access to this teleconference or would like to speak with David Dollar, or any of our more than 700,000 experts, contact us.

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