The Biden Administration’s Economic Policy toward China: Readjustment and New Ar

Song Guoyou is Professor and Deputy Director of the Center for American Studies, Fudan University.The article was originally published inPacific Journal,Vol.30, No.10, 2022.

Since taking office, while essentially continuing the implementation of the Trump administration’s economic policy toward China, the Biden administration has actively explored new concepts and tools to better meet the reality of China-US economic relations but to serve the benefit of the United States.Though twists and turns still exist, China-US economic relations in the Biden era have been stable, without violent conflicts or out-of-control situations, like those in the late Trump era.Maintaining an overall steady development of China-US economic relations is possible for three reasons: the spread of the COVID-19 pandemic, China’s pragmatic implementation of the phase-one agreement, and the structural complementarity between the two economies.However, new issues have emerged in the relations amid intensifying China-US strategic competition.China-US economic relations remain at a crossroads, affected by the changes in their political and security relations.

China-US Economic Relations amid the COVID-19 Pandemic

According to the data of the General Administration of Customs of China, in 2021, the China-US merchandise trade reached US$755.6 billion, in which China’s exports to the United States were US$576.1 billion and China’s imports from the United States were US$179.5 billion.Compared with the figures of 2020, the growth rates in 2021 were 28.7 percent, 27.5 percent and 32.7 percent, respectively.China’s trade surplus with the United States was US$396.6 billion in 2021.1China General Administration of Customs,“Summary of Imports and Exports (in USD) Annually,”January 18, 2022, http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302277/302276/4127483/index.html.In 2021, the US-China trade reached US$661.5 billion, with an increase of US$101.7 billion compared with 2020.The US exports to China were US$151.1 billion, the US imports from China were US$506.4 billion, and the US trade deficit with China was US$355.3 billion.Compared with the figures of 2020, the growth rates for these three posts were 21.3 percent, 16.5 percent and 14.5 percent, respectively.2US Bureau of Economic Analysis,“US International Trade in Goods and Services, December 2021,”February 8, 2022, https://www.bea.gov/news/2022/us-international-trade-goods-and-servicesdecember-2021.In the first three quarters of 2022, the China-US trade and China’s exports to the United States continued to grow, with a growth rate of 6.9 percent and 8.9 percent.3China General Administration of Customs,“Imports and Exports by Country (Region) of Origin/Destination (In USD) in September 2022,”October 24, 2022, http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302277/302276/4635875/index.html.With respect to financial relations, China’s holdings of US Treasury securities have been relatively stable.At the end of 2020, China’s holdings of Treasury securities were US$1,072.3 billion, accounting for 25.6 percent of the total foreign official holdings.By the end of 2021, it was US$1,068.7 billion and 25.7 percent, almost no change compared with the previous year.In 2022,China’s holdings decreased slightly, but the share remained stable.In August,the numbers were US$971.8 billion and 24.9 percent.4US Department of the Treasury/Federal Reserve Board,“Major Foreign Holders of Treasury Securities,”October 18, 2022, https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt.

Regarding investment relations, Chinese companies’enthusiasm for investing in the United States remained strong in 2021.From 2020 to 2021,the volume of deals of Chinese overseas M&As in the United States increased from 97 to 115, while the value of the deals decreased from US$12.98 to US$7.65 billion.In 2021, 86 percent of the deal volume in North America was situated in the United States.5Ernst and Young,“Overview of China outbound investment of 2021,”February 10, 2022, https://assets.ey.com/content/dam/ey-sites/ey-com/en_cn/topics/coin/ey-overview-of-china-outbound-investment-2021-bilingual.pdf.American companies’investment in China has also been stable, without large-scale withdrawal of investment.From the perspective of Chinese companies’listing in the United States, in 2021, 41 Chinese companies were listed in the United States, raising more than US$14.2 billion in combined initial public offerings (IPOs), both of which were higher than those of 2020.6“Summary and Outlook of China Concept Stocks 2021,”https://www.allbrightlaw.com/SH/CN/10475/85ea91e5240c771f.aspx.It should be noted that the listing of Chinese companies in the US in 2021showed a trend of“high to low.”The number of companies listed in the US and the fund raised in the first half of 2021 accounted for the vast majority of the year’s achievements, while there was little progress in the second half of year.In terms of economic sanctions,compared with the trade war period during Trump’s presidency, the number of economic sanctions imposed by the Biden administration on China decreased in 2021.In 2019 and 2020, the Bureau of Industry and Security of the US Department of Commerce added 151 and 141 Chinese institutions and individuals into the Entity List.The number decreased to 76 (in 4 batches) in 2021.

From above analysis, China-US economic relations have remained stable without subversive changes.There are mainly three reasons for this.

First, China and the United States have jointly implemented the phase-one agreement, which ensures the stability of bilateral economic relations.2021 was the second implementation year of the phase-one agreement.According to the agreement, China should increase the import of determined goods and further open up, while the United States should suspend tariffs on Chinese products and create the necessary conditions for more exports to China.Due to the persistent pandemic, China failed to import the proposed amount within the two-year implementation period of the agreement.7According to Chad Bown, senior fellow at the Peterson Institute for International Economics, China’s purchases of US goods and services during the agreement period only reached 57 % of the commitment.See: Chad P.Bown,“US-China Phase One Tracker: China’s Purchases of US Goods,”PIIE, July 19, 2022,https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods.Since Biden took office, the pandemic in the United States has worsened rather than becoming effectively controlled.The numbers of infections and deaths increased in 2021.This has severely restricted not only US exports of energy, machinery and other goods, but also US exports in the area of tourism, education and other services to China.

It should be pointed out that China has been actively fulfilling its commitments in terms of regulatory issues mentioned in the agreement,such as strengthening protection of intellectual property rights and increasing openness of the financial sector, though the quantitative goals in the agreement have not been fully realized.For intellectual property protection, China has stepped up efforts to crack down on violations of intellectual property rights, which is widely recognized as important both at home and abroad.8China National Intellectual Property Administration,“Intellectual Property Protection of China in 2020,”April 25, 2021, http://www.gov.cn/xinwen/2021-04/25/5602104/files/9cfbfa3fed814e1f9d04e56959ed13fb.pdf.For financial openness, three US mutual funds companies, namely BlackRock, Fidelity, and Neuberger Berman, received approval to set up fund units in China.Therefore, the implementation of the phase-one agreement has still effectively maintained the stability of China-US economic relations.

Second, the impact of the COVID-19 pandemic requires China and the United States to maintain stable economic relations.The Biden administration has failed to effectively control the pandemic.In order to deal with a possible economic recession caused by the pandemic and to stimulate economic growth, the Biden administration passed the US$1.9 trillion American Rescue Plan and the US$1.2 trillion Infrastructure Investment and Jobs Act in March and September, 2021, respectively.The total amount has exceeded US$3 trillion, leading to a sudden oversupply of US dollars.Meanwhile, the pandemic has also caused supply chain disruptions as it affects port transportation and domestic logistics in the United States.With these two factors combined, the US inflation rate has been pushed to a new high.In 2021, the US inflation rate rose month by month, from 1.7 percent in February to 7 percent in December.The Ukraine crisis, which broke out in early 2022, has greatly driven up global energy prices.The US inflation rate soared 9.1 percent in June, the highest since 1982.Under such circumstances, the Biden administration has taken various measures to curb inflation as it regards inflation as the biggest threat to economic growth.Maintaining trade with China and expanding imports of goods from China could help stabilize the inflation level in the United States.From China’s perspective, its economic development has been steadily impacted by the COVID-19 pandemic.The quarterly GDP growth rates in 2021 were 18.3 percent, 7.9 percent, 4.9 percent and 4.0 percent respectively, with a clearly declining trend.Maintaining stable economic relations with the United States is good for China’s exports and employment, and consequently for its economic growth.

Third, the structural complementarity between the two economies is the key to the economic relations.The economies of China and the United States are highly complementary, so both sides can benefit from cooperation.This is an endogenous factor that ensures the stable development of China-US economic relations, which works even in face of the double shock of the China-US trade war and China-US strategic competition.The trade data showed that in 2021, US goods imports from China accounted for 17.7 percent of its total goods imports, which was basically the same as 17.8 percent in 2019.The survey of US companies demonstrates a similar picture.The US-China Business Council (USCBC)2021 Member Survey released by the USCBC shows that 95 percent of US companies in China reported profits in 2021, and more than 40 percent of companies planned to increase investment in the coming year.9The US-China Business Council,“USCBC 2021 Member Survey,”September 23, 2021, https://www.uschina.org/sites/default/files/uscbc_member_survey_2021_-_cn.pdf.China Business Report 2021,unveiled by American Chamber of Commerce in Shanghai, reflects that 82.2 percent of companies projected higher revenues in 2021 than in 2020, and 59.5 percent of companies reported increased investment for 2021 compared to 2020, up 30.9 percentage points from last year.69.7 percent of respondents expected revenue growth in China to outpace their companies’worldwide growth over the next three to five years.10The American Chamber of Commerce in Shanghai,“China Business Report 2021,”https://www.amcham-shanghai.org/sites/default/files/2021-09/CBR-2021.pdf.For China, the United States is still the leading export market and the key source of technology, and there is no alternative currently.Therefore, China“must work with any country, region, or enterprise that is willing to work with us, including individual states, localities, and companies in the United States.”11Xi Jinping,“Speech at the Symposium of Experts in Economic and Social Fields,”Xinhua, August 24,2020, http://www.xinhuanet.com/2020-08/24/c_1126407772.htm.

Readjustment of the Biden Administration’s Economic Policy toward China

The overall stability of China-US economic relations does not mean that the Biden administration makes no adjustment of its economic policy toward China.On the contrary, the changing economic conditions of China and the United States, as well as the intensifying China-US strategic competition,have prompted the Biden administration to seek readjustment of its economic policy toward China.

Readjusting the concepts

During the Trump era,“America First”was at the core of US foreign economic policy, which was widely opposed by countries all over the world due to its mix of populism, isolationism, and unilateralism.Trump’s launch of the trade war with China was an important example.However, when implemented, this policy was easy to induce economic frictions with other countries, thus hurting the economic interests of the United States.When Biden, a Democratic president emphasizing multilateralism, took office, he kept a distance from the“America First”policy on public occasions, though he might agree with it in his heart.Thus, it became a top priority for the Biden administration to propose an economic policy that was different from the preceding one, but feasible and in line with US interests.After a period of consideration,the Biden administration officially launched the“Worker Centered Trade Policy.”12Office of the US Trade Representative,“Fact Sheet: 2021 Trade Agenda and 2020 Annual Report,”March, 2021, https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2021/march/factsheet-2021-trade-agenda-and-2020-annual-report;“Remarks of Ambassador Katherine Tai Outlining the Biden-Harris Administration’s‘Worker-Centered Trade Policy’,”June, 2021, https://ustr.gov/about-us/policy-offices/press-office/speeches-and-remarks/2021/june/remarks-ambassador-katherine-tai-outliningbiden-harris-administrations-worker-centered-trade-policy.

From the administration’s perspective, this concept of trade policy has triple advantages.First, it has a strong political appeal domestically because it originates from the interests of the workers.In recent years,facing the sluggish economy and emerging social problems, US policies have been more inward-looking, as people in the United States would like the government to prioritize domestic issues.The voters have complained about the Democratic Party’s bias towards globalization and multinational corporations.Thus, this new concept, which clearly focuses on the working class and echoes the traditional Democratic Party’s stance, would help increase domestic political support and reduce political resistance within the Democratic Party.13Liu Hongzhong,“The Biden Administration’s Middle-Class Foreign Policy: Origins, Framework, and Prospects,”Fudan American Review, No.2, 2021, pp.1-12.Second, this concept of trade policy has great flexibility,and is able to incorporate a lot of other economic policies, both domestic and foreign.Domestic ones may include improving domestic infrastructure,expanding market supervision, raising R&D funding, etc., while foreign policies may include restructuring global supply chains, reforming multilateral economic and trade organizations, and maintaining the“rulesbased”international economic order.The Biden administration attempts to sell all its policies in the name of the“worker centered”concept.Last but not least, this concept could help the United States to better compete with China economically.One of the Biden administration’s biggest diplomatic challenges is to find an appropriate way to compete with China.The Biden administration advocates competing with China from a“position of strength.”

This“worker-centered”concept would help carry out domestic mobilization, build domestic political consensus, and expand domestic investment, so as to consolidate the long-term strength to compete with China.Moreover, this concept could also strengthen the“moral advantage”of the United States.The Biden administration regards its policies of suppressing China as reasonable, since China’s“unfair”economic behaviors have harmed the interests of American workers and caused the loss of American jobs.14USTR,“Remarks as Prepared for Delivery of Ambassador Katherine Tai Outlining the Biden-Harris Administration’s New Approach to the US-China Trade Relationship,”October, 2021, https://ustr.gov/aboutus/policy-offices/press-office/speeches-and-remarks/2021/october/remarks-prepared-delivery-ambassadorkatherine-tai-outlining-biden-harris-administrations-new.

Readjusting the means

The Biden administration believes that it is unrealistic to achieve US economic goals with regard to China simply through tariffs, which may even cause serious damage to the United States itself.Thus, it has been actively exploring new means besides imposing tariffs, with a“value-oriented”economic policy toward China being its new choice.The United States strives to magnify and prioritize the value factors in its economic relations with China, promotes the embedding of values in economic issues, and advocates the“political correctness”of its value-oriented economic policies.The Biden administration regards value issues like“human rights,”which belong to the category of ideology rather than trade, as internal requirements of the economic policy.Through this approach, the Administration could forcibly implement a comprehensive“value review”of its economic policies, as the nature of international economic and trade behavior,namely“exchange”and“buying and selling,”is subsequently weakened,while the political and ideological side is strengthened.On economic issues such as trade, climate change, investment, digital economy etc., values like“democracy”and“freedom”have been vigorously promoted to form value barriers, an upgrade of non-market barriers.

The Biden administration has also significantly escalated trade enforcement efforts against China’s so-called“violations of human rights.”In specific areas, such as customs inspection and license issuance of Chinese exports, the administration has implemented stronger measures of trade control against the upward trend of so-called“value violations,”putting pressure on relevant Chinese companies and individuals because of the higher economic costs and policy risks.The most typical case is Xinjiang.Under the so-calledallegations of“forced labor”and“genocide,”the Biden administration has not only imposed import restrictions on cotton, cotton products, tomatoes, solar polysilicon and other products produced in Xinjiang, but also included the Xinjiang Production and Construction Corps and other institutions in the Entity List.15US Federal Register,“Addition of Certain Entities to the Entity List,”June 24, 2021, https://www.federalregister.gov/documents/2021/06/24/2021-13395/addition-of-certain-entities-to-the-entity-list.In order to better implement the value-oriented economic policies, the internal coordination of decision-making is also strengthened through multi-departmental cooperation.Communication on value issues between economic departments, such as the US Trade Representative,the Department of Commerce and the Department of the Treasury,and non-economic departments, such as the Department of State, the Department of Homeland Security, the Department of Labor, and the Federal Bureau of Investigation, has increased significantly.The aim is to facilitate information exchange, and achieve wider coverage and better implementation of value-oriented economic policies.

Readjusting the issues

Biden himself does not pay as much attention to the issue of China-US trade balance as Trump does.On this issue, Biden holds a similar view with mainstream economic and business circles in the United States,recognizing the market reasons that caused huge trade deficits with China.Instead, Biden has shown greater interest in two other issues, namely climate change and digital economy.Climate change is a high priority on Biden’s global agenda.John Kerry, the US Special Presidential Envoy for Climate, visited China twice, in April and September 2021, to discuss cooperation on climate change and win China’s support.In November 2021, China and the United States released theChina-US Joint Glasgow Declaration on Enhancing Climate Actionin the 2020s at the Glasgow climate summit, namely the 26th UN Climate Change Conference(COP26), announcing cooperation in clean energy and circular economy.Climate change has also become a new area of China-US economic competition as it involves a few economic issues like energy, industry and trade, which bring both opportunities and challenges to China-US economic relations.16Xie Zhenhua,“China and the US Should Restart Cooperation on Climate Change, from Curbing Competition to Win-win Cooperation,”Globalization, No.2, 2021, pp.14-16.

Digital economy is also a high priority.The Biden administration believes that digital economy is a new“track”of future US-China economic relations, on which China has already gained some competitive advantages through the“Digital Silk Road,”a component of the Belt and Road Initiative(BRI).In order to reflect US advantages and formulate“universal”standards in digital economy, including data usage rules, trade facilitation and electronic customs arrangements, the Biden administration has vigorously advocated and promoted the US version of digital trade rules in the World Trade Organization, and has proposed a digital trade initiative in the Indo-Pacific region.17Ji Yuqi,“Prospects for China-US Cooperation on Digital Economy and Cybersecurity during Biden’s Presidency,”China Information Security, No.2, 2021, pp.95-98.The aforementioned active adjustments of economic issues reflects the Biden administration’s attempt to avoid over-focus on trade balance in its economic policy toward China, so as to maintain its ability to set issues in bilateral and multilateral economic areas, especially the new areas that represent the future.By combining domestic and international economic agendas, the United States aims to give full play to the advantages of its industry or technology, set new global rules, and win the future competition.

Readjusting the regions

If Trump’s economic policy toward China has geographical support, it is mainly in North America.His administration tried to limit China’s expanding economic influence through the“poison pill”clause in the newly revised United States-Mexico-Canada Agreement.18Sun Nanxiang,“USMCA’s Restraint on Non-market Economies and Its Legality,”Journal of Latin American Studies, No.1, 2019, pp.60-77.However, Biden believes that relying solely on North America is not enough, and more geographical support is needed.Judging from the geographical design of its economic policy toward China, the Biden administration has adjusted the key areas to Europe and to the Indo-Pacific.Europe is important for many reasons, not only in terms of GDP, financial influence and technology, but also due to its common values with the United States and the existence of North Atlantic Treaty Organization(NATO), a military alliance.During Trump’s presidency, the United States imposed tariffs on EU steel and aluminum products in 2018 in the belief that Europe had taken advantage of the United States, which caused the EU’s countermeasures and led to continuous troubles in their bilateral relations.

To win Europe back, Biden has made a few compromises, including the cancellation of the steel and aluminum tariffs imposed on Europe.Encouraged by these measures, the consistency of their economic policies toward China has been greatly enhanced, compared with that of the Trump era.For example, they have jointly established the US-EU Trade and Technology Council, which consists of ten working groups, to strengthen coordination in the areas of tech standards, supply chains, information and communications technology and services, data governance, misuse of technology, and investment screening etc.It also focuses on dealing with the threats undermining the world trading system, posed by the alleged“unfair trade practices”of the so-called“non-market economies,”which clearly targets China.19US Department of Commerce,“US-EU Trade and Technology Council Inaugural Joint Statement,”September 29, 2021, https://www.commerce.gov/news/press-releases/2021/09/us-eu-trade-and-technologycouncil-inaugural-joint-statement.More moves of the Biden administration could be seen in the Indo-Pacific region.Biden has inherited Trump’s“Indo-Pacific”framework and fully implemented it, at the same time improving its position with more strategic contents.He also set up a specific post, Coordinator for Indo-Pacific Affairs, on the US National Security Council, promoted the launch of the first US-Japan-India-Australia (QUAD) leader’s meeting and its institutionalization, and include more economic issues in the QUAD mechanism, through which he wishes to improve India’s economic especially manufacturing, capacity.

The Biden administration also released the Indo-Pacific Strategy of the United States, in which it formally proposed the idea of Indo-Pacific Economic Framework (IPEF).This is to make up for its comparatively weaker economic capabilities in the region (compared with China), and win over the Indo-Pacific economies.20The White House,“Indo-Pacific Strategy of the United States,”February 22, 2022, https://www.whitehouse.gov/wp-content/uploads/2022/02/US-Indo-Pacific-Strategy.pdf, p.11.By wooing Europe and shaping the Indo-Pacific, the Biden administration, compared with the Trump administration,has made a breakthrough in terms of the geographical scope it can rely on to compete with China.

New Areas of Competition in China-US Economic Relations

Under the framework of China-US strategic competition and the policy adjustments of the Biden administration, competition has emerged between China and the United States around new issues.This, to a large extent,reveals the new areas of China-US economic competition, which will exist for a long time, at least during Biden’s presidency.

The first area of competition is related to supply chain resilience.Supply chain is a top priority on Biden’s economic agenda.Shortly after taking office, he issued Executive Order 14017, requiring a review of the supply chain risks in the United States.21The White House,“Executive Order on America’s Supply Chains,”February 24, 2021, https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supplychains/.In June 2021, the Biden administration released findings for four critical products, namely semiconductor, battery, critical materials, and pharmaceutical supply chains,and announced the establishment of the Supply Chain Disruptions Task Force to address supply chain discontinuities.22The White House,“Fact Sheet: Biden-Harris Administration Announces Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities,”February 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/08/fact-sheet-biden-harris-administration-announcessupply-chain-disruptions-task-force-to-address-short-term-supply-chain-discontinuities/.One year after the issuance of the Executive Order 14017, the US Departments of Defense, Homeland Security, Commerce, Energy, Agriculture, Transportation, and Health and Human Services, released the results of their supply chain assessments, all of which agreed that the United States was heavily dependent on China for many key products.For example, in the assessment of the information and communications technology supply chains, the US Departments of Commerce Homeland Security clearly pointed out that the production of printed circuit boards, displays and electronic components in the US information and communications technology industry has become increasingly concentrated in China.23US Department of Commerce and US Department of Homeland Security,“Assessment of the Critical Supply Chains Supporting the US Information and Communications Technology Industry,”February 24,2022, https://www.dhs.gov/sites/default/files/2022-02/ICT%20Supply%20Chain%20Report_2.pdf.

In August 2022, Biden signed the Chip and Science Act of 2022,aiming to improve self-sufficiency of high-tech products such as computer chips.In general, the building of safe and resilient supply chains for critical products will remain a key task for Biden.24Wang Zhongmei,“The Paradox of Resilient Supply Chain Strategy and China’s Policy Responses,”Pacific Journal, No.1, 2022, pp.36-60.It might severely impact China-US economic relations, as the Biden administration emphasizes reduction of supply chain reliance on China.In fact, it is not only the Biden administration that attaches great importance to supply chain issues.After experiencing the shocks brought by the trade war and the pandemic,China also deeply recognizes the strategic importance of supply chains to its economic competitiveness and international status.Aware of its unique advantage of whole-industry supply chains, China believes that it needs to take measures to promote an orderly transfer and stable development of the supply chains within the country, and avoid falling into the“deindustrialization”trap that has been experienced by some developed economies.Based on joint efforts of governments at all levels in China,the share of the secondary sector in GDP rose from 37.8 percent to 39.4 percent in 2021, reversing the declining trend in recent years.25The secondary industry accounted for 39.9% of China’s GDP in 2017, 39.7 % in 2018, and 38.6% in 2019.See China National Bureau of Statistics,“Statistical Communiqué of the People’s Republic of China on the 2021 National Economic and Social Development,”February 28, 2022.The Outline of the 14th Five-Year Plan emphasizes pursuing both economic efficiency and security, doing a good job in strategically designing supply chains and adopting targeted policies for different sectors, and consolidating and improving the manufacturing chains.

To a large extent, the independence and integrity of supply chains for key products has become the focus of China-US economic competition.Under the common policy orientation of developing domestic supply chains, China and the United States have gradually reduced supply chain dependence on each other for key products related to national security.The problem is that supply chain competition around several key products might spread to upstream and downstream products or other products if not managed properly, since supply chains are comprehensive and interconnected.This may trigger new economic conflicts between China and the United States.

The second area of competition is related to economic allies.Under the framework of strategic competition, China and United States would inevitably face the trend toward economic alliances.26Song Guoyou,“From Trump to Biden: The Evaluation and Prospect of China-US Economic and Trade Relationship,”Fudan Journal (Social Sciences Edition), No.5, 2021, pp.176-182.The Biden administration attaches great importance to the strategic role of allies in reshaping its global economic leadership, regarding them as special assets in its economic competition with China.It tries to amplify its economic advantages against China by coordinating and cooperating with the allies to implement economic policies toward China simultaneously.The core strategy is to combine economic factors, such as trade, investment, finance and technology, between the United States and its allies, and strengthen economic policy coordination.In this way, the United States and its allies could form greater economic advantages over China, and further expand their rule-making power in the global economic system.27Wu Xinbo,“How US Allies Make Decisions on Economic Relations with China Under US Pressure,”World Economics and Politics, No.1, 2022, pp.76-102.US Secretary of State Antony Blinken has repeatedly mentioned the importance of alliance,hoping to work with the allies in dealing with various threats and challenges.US Treasury Secretary Janet Yellen has also stated that as cornerstones of the global economy, the United States is committed to creating a stronger transatlantic economic relationship, and supporting a broader alliance system through the free and integrated US-EU alliance.Due to the strategic adjustments of the Biden administration, an anti-China element has been added into the existing alliance mechanisms.

For example, the Group of Seven (G7), an ignored and marginalized mechanism during the Trump era, has gained strong attention from the Biden administration again.At the G7 summit held in 2022, Biden announced the launch of the Partnership for Global Infrastructure and Investment, promising to raise US$600 billion by 2027.This initiative is designed to compete with China’s Belt and Road Initiative and counterbalance China’s influence in global infrastructure construction.In addition to the existing mechanisms, a few new coordination mechanisms which serve the United States and its allies have been created, such as the aforementioned US-EU Trade and Technology Council.Facing the US’s attempts to get its allies on boardto suppress China, China has taken targeted countermeasures.In Europe, China has strengthened strategic communication with Germany, France and other countries, called on European countries to expand their strategic autonomy, and promoted cooperation in areas such as connectivity, digital economy and climate change.In Asia, China has strongly supported the negotiations of the Regional Comprehensive Economic Partnership (RCEP), in order to promote intra-Asian trade and investment liberalization and facilitation, and deepen regional economic integration.

The third area of competition is related to regional economic mechanisms.This is not a new topic between China and the United States.During the Obama era, the United States promoted and concluded negotiations of the Trans-Pacific Partnership (TPP), from which Trump withdrew as soon as he took office.Due to Trump’s distrust in multilateral economic mechanisms and keeping his distance from them, China-US competition over regional economic mechanisms was weakened during the Trump era.Unlike Trump, however, Biden favors a stronger role for international mechanisms, which has led to the reemergence of China-US competition over regional economic mechanisms.For the United States,the signing and entering into force of RCEP, which consists of China and 14 other countries, indicates that China’s regional economic influence has further expanded.Moreover, through RCEP, the FTA relationships are essentially formed between China and Japan, and among China, Japan,and the Republic of Korea.This could play a long-term role in shaping the vertical industrial division and improving political relations in East Asia, which would weaken US influence in the regional economic system.In addition, China has officially applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA).These moves fully demonstrate China’s determination and confidence in expanding reform and opening up,and would serve to promote China’s further regional economic integration.However, for the United States, these reflect China’s aggressive posture in regional economic mechanisms.Due to domestic political constraints, it is difficult for the United States to return to CPTPP currently.

Thus, in order to compete with China, the Biden administration launched the IPEF, which highlights the so-called“high standard”rules in labor rights, environmental protection, free cross-border data flow, policy transparency, competitive neutrality etc., and focuses on a few areas like supply chain, digital economy, clean energy transition, and infrastructure investment.This is similar to the competition model during the Obama era, which relied on regional mechanisms to compete with China.From an objective point of view, the active participation of some regional economies in the IPEF does intensify China-US economic competition.For China,the IPEF certainly brings some challenges, but it also has some limitations.First, in order to reduce domestic political pressure, the IPEF is not a legally binding free trade agreement, and might be abandoned by future US governments even if it’s achieved.Second, the actual attractiveness of the IPEF to other economies is relatively limited, as the United States does not make substantive concessions like tariff reduction or market access.Third,over the past decade or so, China has become more capable of accepting and adapting to sensitive rules, with adjusted domestic laws and regulations.Thus, it doesn’t worry that much about the shocks IPEF may bring,compared with the TPP period.Advocating new economic mechanisms is understandable.However, these mechanisms should be inclusive, open,diverse, and conducive to the economic development of various regional economies, rather than deliberately implementing a set of exclusive and discriminatory rules.But for IPEF, the policy orientation is clearly competing with China and the mechanism excludes China.

The fourth area of competition is related to economic sanctions and anti-sanctions.In recent years, China has adopted a number of countermeasures, including economic measures, against individual countries that have severely harmed China’s core interests.A recent case is Lithuania.China applied investment and trade restrictions on Lithuania because it allowed Taiwan to set up a Taiwanese Representative Office in the country.The Biden administration took this opportunity and maliciously used the term“economic coercion”to stigmatize China’s legitimate economic countermeasures.28US Department of State,“Secretary Blinken’s Meeting with Lithuanian Foreign Minister Landsbergis,”September 15, 2021, https://www.state.gov/secretary-blinkens-meeting-with-lithuanian-foreign-ministerlandsbergis/; US Department of State,“Secretary Blinken’s Call with Lithuanian Prime Minister Simonyte,”December 21, 2021, https://www.state.gov/secretary-blinkens-call-with-lithuanian-prime-ministersimonyte/.In fact, the United States is the country that imposes the largest number of economic sanctions on other countries.Due to the US’s increasing use of economic sanctions as a policy tool in its relations with China and other countries, and China’s tendency to use economic means as an important supplement to diplomatic means, the issue of economic sanctions and anti-sanctions has become a conspicuous issue in China-US economic relations.This leads to two related problems.First, regarding the legitimacy of economic sanctions.In the fierce confrontation between China and the United States on the issue of economic sanctions, the United States claims that its international sanctions are legitimate with sufficient legal basis, such as the Countering America’s Adversaries Through Sanctions Act, the International Emergency Economic Powers Act, the Global Magnitsky Human Rights Accountability Act, and other laws passed by the Congress or executive orders signed by the president.At the same time, it accuses China of announcing economic countermeasures that have“no legal basis.”This is an attempt to weaken the legitimacy of China’s economic sanctions, which puts China in a passive position.In response, China’s Ministry of Commerce promulgated the Provisions on the Unreliable Entity List in September 2020, and the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures in January 2021, while the Anti-foreign Sanctions Law of the People’s Republic of China was approved by the National People’s Congress and went into effect in June 2021.These provide a legal basis for China to use economic measures to crack down on foreign actions that harm China’s sovereignty, security, and development interests.29Cai Kaiming,“Studies on US Legal and Policy Tools towards China and Countermeasures,”Administration Reform, No.4, 2022, pp.51-63.

Second, the response to economic sanctions.The United States has imposed or threatened to impose economic sanctions on China on a series of issues related to China’s sovereignty, security, development, and normal cooperation with third countries.This has constituted a great threat to China’s economic security, and will continue to be a major negative factor hindering smooth development of China-US economic relations.China has to seriously respond to the US’s existing and potential extreme economic sanctions, even though it will generate additional cost and inevitably affect China-US economic cooperation.In addition to the twoway sanctions, China and the United States are also currently involved in third-party sanctions, which could be seen in the cases of China’s economic countermeasures against Lithuania and the US sanctions against Russia.If not properly managed, this might lead to a bilateral economic confrontation between China and the United States.

Conclusion

Since Biden took office, China-US economic relations have been generally stable.Biden has tried to adjust Trump’s economic policy toward China, but has not achieved a real breakthrough yet.It will take a longer time to completely get rid of the policy inertia of the Trump administration.Under the heavy pressure of the pandemic, both China and the United States have adopted more“inward-looking”economic policies, regarding domestic economic development as the top priority.Due to these reasons, China-US economic tensions have been relatively eased, though competition and confrontation factors still exist.First,the uncertainty of the negotiations of the new phase agreement.The United States believes that China is far from fulfilling the procurement promises in the phase one agreement, the implementation period of which has already ended, so it must keep the tariffs in order to exert necessary pressure on China.30Peterson Institute for International Economics,“US-China Phase One Tracker: China’s Purchases of US Goods,”https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-usgoods.However, the surging domestic inflation and China’s potential countermeasures against the United States might restrict the Biden administration’s continuation of high tariffs on China.In addition, the administration is split on whether or not to remove China tariffs, with the“tariff exemption”camp represented by Janet Yellen and the“tariff continuation”camp represented by Katherine Tai.This also leads to the fluctuating stance of the Biden administration on this matter.

Second, the structural changes of the economic strength of China and the United States.Though the pandemic has strengthened mutual economic needs between China and the United States in the short term,it has also changed the long-term comparison of their economic strengths.In 2021, the scale of China’s GDP is around 77 percent of that of the United States,7 percent higher compared to 2020 (70.3 percent).This indicates not only an accelerating transfer of global economic power, but also a closer strategic economic conflict between China and the United States.

Third, the impact of domestic politics.2022 is a big political year for both China and the United States, represented by the 20th National Congress of the Communist Party of China and the US mid-term elections.Under these circumstances, the impact of domestic politics on China-US economic relations could not be clearer.

Fourth, the impact of geopolitics.The Ukraine crisis has intensified the geo-economic rivalry between China and the United States, which demonstrates that short-term stability does not automatically lead to long-term cooperation.Looking back at the Trump era, China and the United States had engaged with each other in the first year of the Trump Administration, but just one year later, the United States lost patience and brazenly launched the trade war against China, resulting in a sharp breakdown of China-US economic relations.The strategic competition side may become more evident as the stabilizing effect of the pandemic fades away.The Biden administration’s economic policy toward China is still at a crossroads.However, no matter what the United States chooses,China needs to maintain its strategic focus, and deal with the uncertain future with greater economic strength.