What should the Biden administration be doing about the U.S. trade and economic relationship with China? On Monday, U.S. Trade Representative Katherine Tai finally laid out the administration’s long-awaited strategy, the outcome of what was said to be months of internal deliberations. If that is so, it’s hard to know what U.S. officials spent all that time talking about; the product is less a policy or a strategy than a shrug—they’re not really sure what to do about China, and they’ll let you know when they figure it out.
The confusion is understandable. Over the past two decades, the United States has pursued two different approaches that have utterly failed by their own measures. One was a multilateral strategy to entangle China in a web of trade rules and make it a “responsible stakeholder” in the global economic system. The other was a brute force bilateral effort to use import tariffs and other sanctions to force a recalcitrant China to reduce its subsidies and other trade distortions. Neither did the slightest to alter Chinese economic behavior, which continues to be driven primarily by the internal ambitions and fears of its Communist Party leadership.
U.S. President Joe Biden’s blueprint, if it can be called such a thing, tries to split the difference. Tai made it clear that former President Donald Trump’s tariffs on Chinese imports would stay in place but promised to restart an “exclusion” process that should give relief to some U.S. companies harmed by the tariffs. She said Washington would continue to hold Beijing to targets for purchasing U.S.-made products negotiated under Trump, even though China has fallen far short of those commitments. She suggested the administration would relaunch negotiations with China over its industrial policies—a tactic that has failed repeatedly—but went out of her way to emphasize that the goal was “not to inflame trade tensions with China.” And while she only briefly mentioned the World Trade Organization (WTO), which was once the global arbiter of trade rules, she did promise to “work closely with our allies and like-minded partners toward building truly fair international trade that enables healthy competition.”
That last phrase holds the one small seed of what could be a different approach. The Biden administration will struggle to move forward on trade unless it changes the definition of success. It should stop trying to change China and instead pursue trade and economic policies that work better for the United States and for the rest of the world. The obsession with China has distorted U.S. trade policies in ways that are deeply harmful for its interests. Trump’s tariffs, for example, have mostly hurt U.S. manufacturers and consumers. Instead of trying to build a trade policy to counter unfair competition from China, the Biden administration should pursue an “all others” strategy that, in Tai’s phrase, “enables healthy competition.” That would offer trading partners something more than the stark choice Trump offered them between dealing with an American bully and dealing with a Chinese bully, and it could help change the domestic political conversation over trade in the United States.
It is no surprise the administration is struggling to define a new approach to trade. Democratic administrations from Bill Clinton to Barack Obama had hoped that inviting China into the WTO in 2001 would have anchored it firmly in the U.S.-led economic order and opened big new opportunities for U.S. exporters. Instead, the result was a Chinese export surge that hammered U.S. manufacturers. And while China sometimes complied with adverse WTO rulings, its commitment to WTO rules was instrumental: China complied where it served the country’s interests in expanding exports and advancing up the technological ladder, and it ignored the rules when they stood in the way of those goals. Massive domestic subsidies and restrictions for foreign companies that continue to violate WTO rules helped China become a world leader in such industries as steel and solar panels.
Trump preferred a more direct approach: He simply ignored WTO rules and slapped tariffs on more than $400 billion in imports from China in an effort to cause economic pain that would force China to change course. It did not. While some manufacturing has migrated from China to Southeast Asia—not back to the United States as Trump has hoped—the U.S. trade deficit hit a new record in August, and the gap with China was the largest in more than two years.
Along the way, the rest of the world became collateral damage. The China shock of the early 2000s—when imports from China led to the loss of millions of U.S. manufacturing jobs—fueled a narrative that the United States was a victim of unfair trade from everywhere. Trump slapped tariffs on steel imports from Europe and Japan; neutered the WTO’s dispute settlement system to free Washington from any constraints; pulled the United States out of the Trans-Pacific Partnership, a huge trade liberalizing agreement with Japan, Vietnam, Australia, and others that excluded China; and forced a bruising renegotiation of the North American Free Trade Agreement with Canada and Mexico. Over Trump’s four years in office, U.S. trade policy did far more harm to friends and allies—and U.S. companies—than it did to China.
While the Biden administration has denounced such aggressive unilateralism, it is only slowly crawling out of the shell Trump built. A new approach would align the United States with the vast majority of countries that want trade to be conducted on fair terms and want to resolve trade disputes without resorting to tariffs or other sanctions. The early moves with Europe are encouraging. The United States and the European Union have resolved a festering 17-year-old dispute over subsidies to aircraft-makers Boeing and Airbus, and they recently launched a high-level Trade and Technology Council that has begun to hammer out common approaches on foreign investment screening, export controls on sensitive products, technology standards, and securing global supply chains. The to-do list is impressively detailed, in contrast to the bare-bones China policy.
Reengaging on trade with Asia should be another top priority. Tai has so far deflected questions about joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor to the Pacific trade agreement Trump abandoned; on Monday, she responded with what the Wall Street Journal editorial board called “diplomatic mush,” vaguely promising to “address the realities and challenges that we see today.” The deal remains controversial among both Democrats and Republicans, who have each been drawn into the broader populist backlash framing every trade agreement as a threat to U.S. jobs. But expanding trade with Asia as part of a broader Indo-Pacific strategy to counter China could help change that narrative. Both parties are united in seeing China’s economic aggressiveness as a threat, and closer ties to other Asian countries are an obvious response. China’s recent application to join the CPTPP only makes the need more urgent. The remaining countries have reason enough to keep China out—Australia and Canada have both seen China block their exports over unrelated diplomatic rows, another clear violation of WTO rules by Beijing. But without an engaged United States, CPTPP members will face considerable pressure from China to make concessions in return for continued access to its huge market. There are many steps short of joining the CPTPP that would be a positive first step for the United States, including sectoral deals on digital trade or medical products.
Finally, the Biden administration needs to commit to revitalizing the WTO. The organization’s new leader, Ngozi Okonjo-Iweala, has grown so frustrated with the inertia that she is threatening to resign just seven months into her term. Washington hasn’t helped her at all. The administration pledged to waive intellectual property provisions to help speed the worldwide production of COVID-19 vaccines but has put no muscle behind the initiative. It threw a last-minute wrench into two-decade-old negotiations to reduce harmful fishing subsidies that have led to overfishing in the world’s oceans; China is the worst offender here. But the United States is now insisting that the agreement must also ban forced labor on fishing vessels, a fresh twist that is delaying conclusion of the widely supported pact.
The Biden administration should instead urgently set about repairing the WTO, starting by lifting its hold on appointments to the paralyzed Appellate Body and allowing the dispute settlement system to function properly again. The Trump administration’s decision to bar new appointments shut down the dispute settlement process, effectively putting smaller countries at the mercy of larger ones that can use tariffs and other barriers to get their way. Reviving the Appellate Body would send a clear signal to the world that the United States still believes in a rules-based trading system. The EU and other governments have made reform proposals to address some legitimate U.S. concerns. When Tai travels to Europe next week for meetings with G-20 trade and investment ministers in Sorrento, Italy, and WTO meetings in Geneva, she should push for a broader agreement on reform by the WTO ministerial set for late November and early December.