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| DATE | 2021-01-02 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] What COVID-19 has meant to Western Economies and
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wsj.com
Biden’s Get-Tough Plans Face Sobering China Reality
Gerald F. Seib
6-8 minutes
As President-elect Joe Biden’s team prepares to move in, there’s a lot
of loose talk in Washington about getting tougher with China, and
beginning the process of decoupling the two nations’ economies.
As is often the case with loose talk, though, reality is a lot more
complicated. Getting tougher economically will be, well, tough.
Despite four years of pressure from the Trump administration, China’s
economy actually is stronger in some ways at the moment than is the
economy of the West. Though China has plenty of its own problems,
international capital is flowing in, not out. Within Asia, China
actually has improved its trade position.
“China is in a strong negotiating situation,” says Josh Lipsky, director
of programs and policy at the Atlantic Council’s GeoEconomics Center. He
adds: “The centrifugal forces coming out of China are stronger than they
were in 2017.”
Indeed, the International Monetary Fund projects that China’s economy
will expand by 1.9% in 2020, which means it is likely to be the only
major world economy to grow in this year of the coronavirus pandemic. By
contrast, the American economy is expected to shrink by 4.3%, and the
eurozone is forecast to contract by 8.3%.
Mr. Biden has talked about forging a stronger front with allied nations
to reduce China’s economic leverage, and creating incentives for
American companies to move critical supply chains home from China. He
hasn’t declared yet what he will do with the tariffs President Trump has
imposed on a range of imports from China, or the future of a partial
trade deal the Trump administration negotiated with Beijing.
The IMF projects that China’s economy will expand by 1.9% in 2020,
despite the coronavirus pandemic.
Photo: alex plavevski/EPA/Shutterstock
As he faces those decisions, Mr. Biden is looking at a China that, in
many respects, has weathered its trade fight with the Trump
administration surprisingly well. Data from the U.S. Census Bureau show
that the U.S. trade deficit with China in October, the latest month for
which figures are available, was just 5% smaller than it was a year
earlier. American exports to China were higher, largely because of more
purchases of agricultural products, but so were imports from China.
On other fronts, China’s economic leverage actually has grown. It has
joined 14 other countries in a new regional trade bloc that excludes the
U.S.
Meantime, European nations are trying to complete a bilateral investment
agreement with China. Overall, despite rising political tensions between
China and the West, Western financial capital is flowing into China.
A recent Atlantic Council report shows that foreign purchases of Chinese
debt have risen markedly over the last four years, and concludes:
“Generally speaking, China’s opening measures promoting further
integration of its financial markets with global markets stand in sharp
contrast with the decoupling rhetoric coming out of Washington.”
David Dollar, a former U.S. Treasury attaché in Beijing, notes that
America’s allies generally are less interested in detaching their
economies from China’s than is the U.S. “If our allies remain engaged
with China, then our decoupling would isolate us and strengthen China’s
relative position,” he says.
Moreover, he argues, even if the U.S. succeeded at pushing China out of
the global economy and its institutions, “China likely would create
alternative institutions, and many developing countries will find it in
their interest to go with China. So, we would re-create the kind of
blocs that we had during the Cold War.”
More broadly, there is a danger that economic decoupling actually would
exacerbate the geopolitical and military tensions that already hang over
the U.S.-China relationship. One of the forces that can keep the rivalry
from getting out of control is mutual economic dependence. Unlike in the
Cold War, when the U.S. had little financial entanglement with the
Soviet Union and virtually no economic dependence on it, Washington and
Beijing have a deeply layered economic relationship that, so far at
least, has almost forced them to find a way to coexist.
That mutual dependence now is at least being called into question, with
potentially far-reaching ramifications. “The U.S. and China are locked
in an explicit and escalating power struggle that could tear apart the
rules and institutions underpinning the global trade and governance
systems,” says Eswar Prasad, a professor of trade policy at Cornell
University. “This will have deleterious effects on multilateralism,
giving way instead to warring coalitions on a range of key issues
relevant to businesses, consumers and investors around the world.”
The bottom line is that the U.S. and China inevitably are heading into a
more tense relationship during the Biden years, on security, trade and
economic fronts. There is broad, bipartisan sentiment for a tougher
approach to Beijing. But exactly what shape this changing relationship
takes is very much up in the air. Meantime, the uncomfortable reality is
that China enters this period of reassessment with some strong economic
cards in its hand.
Biden’s China Policy: New President-Elect, Same Tensions
Biden’s China Policy: New President-Elect, Same Tensions
President-elect Joe Biden has sent signals that the U.S. will remain
tough on China, from trade to technology. WSJ’s Jonathan Cheng explains
the new administration’s policy approach and how China might respond.
Photo: Lintao Zhang/Press Pool (Originally published Nov. 11, 2020)
Write to Gerald F. Seib at jerry.seib-at-wsj.com
--
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