Biden and Trump and the trade war with China
Any gain by Donald Trump in November 2024 will have little immediate impact on the U.S. relationship with China. Grossly, President Biden has built on the protectionist policies of his predecessor, and a second term of Donald Trump will not immediately change that (neither will a second term of Biden). In the relationship between the two countries, subtle differences will come to define the picture, where the war in Ukraine and the related closer relationship between Russia and China will play a larger role. As for Taiwan, President Biden has indirectly stated on four occasions that he will defend the country should China attack it. The treaty between Taiwan and the US is limited to supplying arms, but it is hard to imagine that a Chinese attack would go unanswered. Donald Trump, as president-elect, congratulated Taiwan’s newly elected president in December 2016, breaking the diplomatic protocol maintained until then. Whether he would defend Taiwan as president is uncertain but Xi would be crazy to rule it out.
Trump starts import tariffs immediately
The point is: with Trump, you never know. During his first term, Trump initially tried to build a relationship with Xi, following Trump’s tried-and-true model of transactional contacts. That is, he would be nice, if Xi was nice to him. Trump even hosted Xi at his palace in Florida. America’s trade deficit between the two countries was on the agenda, if only because Trump believed that any kind of trade deficit with any country was (and is) unacceptable. But most of all, Trump hoped to use China to clamp down on North Korea.
In November 2017, Trump himself visited Beijing and Xi was able to play host. Trump’s international standing was not tremendously high, China’s was only growing, so Xi had reason for a happy face. Of course, the death in captivity of Chinese writer and Nobel laureate, Liu Xiabo, did not come up. Did Donald Trump state at the time that he had “a lot of respect” for Xi, and that will not have changed given his preference for authoritarian leaders. But on trade policy, a reversal took place. Over the course of his presidency, Trump’s protectionism gained teeth, influenced in part by his hawkish advisers. He imposed a 10 percent tax on all imports. Good for the treasury but because the cost was simply passed on to buyers, it was not China but the American citizen or business that paid for this policy.
In 2020, Trump struck a deal with China that required the country to import more American products, such as agricultural products, and implement a number of economic reforms. Nothing has come of it. He claims the Chinese are afraid of him and that this allows him to get more done. Xi seems unimpressed.
frame
No matter who is in the White House, the confrontation with China will not diminish. Indeed, it is one of the few issues on which Democrats and Republicans agree. Confrontation is ingrained in relations, although the extent to which China’s domestic economic problems limit Xi’s policy space is unclear. For China, it is about what it sees as its rightful place in the world, and it will not budge a millimeter on that.
Gunfire on three fronts
The trade war is being fought on several fronts at once; electric car production, chip production (Taiwan is now the leading producer) and green technology whose components are becoming increasingly important in the global economy. The battle over apps, particularly TikTok, is derivative.
Tesla or BYD?
As part of the now-forgotten trade war, the Biden administration this spring taxed imported Chinese electric cars by 100 percent, although they remain significantly cheaper than the far overpriced American cars. His goal is twofold: protect American industry and preserve the technology needed to drive the transition to electric driving. A future President Trump will also tax those Chinese cars highly. Trump also wants to protect the auto industry but his second goal is to serve the fossil fuel industry.
According to Trump, electric cars are a “hoax,” a meaningless word for everything he is against. Trump claims Chinese cars will destroy the American auto industry. The irony (or problem) is that many major manufacturers have joint ventures with, for example, Chinese battery manufacturers that have set up shop in America itself. Chinese companies have also entered into joint ventures with factories built in Mexico, with which the U.S. has a free trade agreement. Trump also wants to stop imports through Mexico. It looks like mopping up with a faucet.
The intermediate score: it is between BYD and Tesla for the honor of the largest producer of electric cars.
Chip and green technology
With the growth of AI, the chip industry is more necessary than ever. China wants to catch up in chip technology. Xi Jinping is railing against export controls on crucial technology, chokehold technology, as the Americans call it. China cannot do much against restrictions on chipmakers, but has responded with export controls on gallicium and germanium, raw materials needed to make chips. It’s an unequal fight, however: raw materials against holding back intellectual knowledge. In the area of less sophisticated chips, China is gradually building its dominance.
America is pumping a lot of money into green manufacturing facilities through the Inflation Reduction Act. In addition, there are import tariffs of one hundred percent on solar panels. Nevertheless, China is ahead in solar panel production. This makes Longi the world’s largest producer and CATL of batteries.
Biden or Trump on repeat?
It is expected that after the election America will begin a new round of export controls. Biden has made a firm advance. In addition to higher import tariffs on cars, Biden announced a tripling to 25 percent of levies on certain types of steel and aluminum, and a doubling of the levy on semiconductors to 50 percent. It is anything but a coincidence that he announced his tariffs on steel in Pennsylvania, a swing state he is expected to win in November.
If the new president is named Trump, further increases will follow and American companies will have to refrain from any investment in China. Serious restrictions will be placed on quantum technology, needed for quantum computing and sensing technology, an area in which China is lagging behind, at least in its development. Trump promises tariffs of sixty percent on all goods that China ships to America annually and also ten percent on imports from other countries. How serious that is remains to be seen. The 2018 tariffs came in a climate of low inflation, just before corona halted trade flows. In 2025, they will directly drive up inflation, the very issue on which Trump is attacking President Biden. According to some studies, these new levies would cost an average middle-class family about $1,700 more per year.
A second Biden administration will continue with green policies and especially block China in those growth markets. The problem for the U.S. is that very little is exported to America from China, but all the more to Europe and the rest of the world. If access to the U.S. market is cut off, Chinese companies suffer little. Moreover, it gives China a chance to set the standard for the rest of the world in greentech.
At the G7, the Biden administration presented a strategy to compete with state-funded Chinese companies, but Europe is engaged in its own trade restrictions. ‘Deglobalization’ The Economist calls it.
And the winner is the loser
According to pessimists, this all fits into a beggar thy neighbor-like development that bears similarities to the protectionism that proved so disastrous in the 1930s. According to an IMF paper, it is 75 percent predictable that a subsidy for one product in one major economy will be parried within a year by a subsidy for the same product in another major economy. And so on and so forth.
Frans Verhagen is a historian specializing in the US. His most recent book is The American President. History of the most powerful office in the world (Boom)
