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Biden seen enlisting allies in China trade war with limited success, less harm

Joe Biden would likely change the U.S. approach to tackling China's trade practices if he becomes president with a strategy of enlisting the help of allies including the European Union, Canada and Mexico.

However, after four years of unilateralism under President Donald Trump that have reaped little in terms of changing China's behavior, there is limited confidence that Biden's multilateral approach would fare much better.

Trump hammered at China by placing tariffs on $550 billion worth of products from July 2018 to September 2019, and goods trade between the two countries fell by more than $100 billion in 2019 from its all-time high of $658 billion in 2018. The U.S. goods trade deficit with China rose by 21% in the first half of Trump's term, to $418.9 billion, before dropping in 2019 to roughly the same level as when the Trump administration began, with exports of both U.S. and Chinese goods dampened.

Meanwhile, China has yet to make much in the way of concessions on issues of intellectual property and forced technology transfer that are seen as most crucial to U.S. interests.

A change of tack under former Vice President Biden "won't necessarily make it easier to solve the problems, but it will reduce the collateral damage to U.S. consumers and businesses," said Peter Allgeier, who served as U.S. deputy trade representative under the George W. Bush and Obama administrations. "That in itself will be a marked improvement."

The end of tariffs?

Biden has pledged to end the tariffs the Trump administration slapped on Chinese goods and to take a multilateral, ally-reunifying approach to coax China into adhering to international trade standards. However, he has declined to say what he would require in return in the way of concessions from Beijing, and that has attracted concern from opponents that China will have little impetus to curtail market-distorting practices at the expense of U.S. companies.

The value of U.S. imports subject to additional tariffs in 2019 was $334.2 billion, costing American consumers $52.9 billion last year, according to the American Action Forum, a pro-trade think tank.

Companies reliant on Chinese supply chains have lamented the frayed state of trade relations between the two countries under the Trump administration, even after the White House's "phase one" agreement with China was signed in January.

Among other provisions, the deal included pledges from China to increase purchases of U.S. goods by more than $200 billion over two years.

But through July, China was $43.8 billion behind the pace to meet its purchase promises, according to Panjiva.

Biden has attacked the phase one deal as an "unmitigated disaster," and Trump has said that he is no longer seeking a "phase two" agreement.

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Biden could opt for a diplomatic approach to get concessions out of China, said Bill Reinsch, senior adviser for the Center for Strategic and International Studies.

The former vice president "probably won't get rid of the current [tariffs] immediately but will use them as a basis for negotiation with a view to eventually getting rid of them in return for something from the Chinese," Reinsch said. "There will also be a search to find places where we can cooperate, climate change being the most obvious."

'Aggressive' enforcement

Biden said in an Aug. 5 interview with National Public Radio that "we have disarmed ourselves" because the Trump administration "poked a finger in the eye" of long-standing trading partners. He said he thinks China will respond "when we gather the rest of the world in open trade" and "that's when Chinese behavior is going to change."

In his proposed economic plan, Biden said he would take "aggressive" enforcement actions to curtail what he sees as Chinese attempts to skirt World Trade Organization rules and force the transfer of intellectual property as a condition of doing business in the nation.

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President Trump and his China hawks are doing their best to make it difficult for a potential Biden administration to roll back rules on technology decoupling and other restrictions on Chinese technology companies, said Gary Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics. Instead, Biden could very well scale up the exemption process for companies importing from China subject to tariffs. In turn, China could further lower its own tariffs, Hufbauer opined.

"That would give Biden some room to de-escalate in what I would call piecemeal fashion," Hufbauer said in an interview. "Maybe over a year or so there will be a more moderate level of accommodation. But a quick reversal is very improbable. In my outlook, there is only a 10% probability."

Buy American

At the same time, Biden and Trump are taking similar positions against Chinese actions that allegedly limit the competitiveness of U.S. companies. Biden has a "Buy American" policy plank similar to a long-standing Trump White House aim to bring manufacturing back to the States. This is, in part, due to Biden's qualms over Beijing's requirement that China must take 51% ownership in foreign ventures.

Trump and Biden agree that this policy is at the expense of U.S. firms, with Biden telling National Public Radio earlier this month that this has "got to end."

Whatever Biden does if he wins, it seems that relations between the U.S. and China can only improve.

Craig Allen, the president of the U.S.-China Business Council, calls the current state of relations between the two countries the "nadir" since 1989.

"None of our members would dispute that bleak characterization of bilateral relations today," Allen said. "We deal with that reality daily. But we still need to look forward."

Panjiva is a business line of S&P Global Market Intelligence, a division of S&P Global Inc.