What’s Next for U.S. Trade With China?

For months, the U.S. business community and those working in foreign policy have been awaiting the Joe Biden administration’s review of U.S. trade policy vis-à-vis China. On Monday, U.S. Trade Representative Katherine Tai outlined the results of the administration’s audit in a highly anticipated speech at the Center for Strategic and International Studies.

Did the administration signal a new approach to trade with China?

Instead of laying out a wholly new vision for addressing the challenge posed by China, Tai indicated that the Biden administration largely intends to continue the trade policies developed by President Donald Trump’s administration. The tariffs covering more than two-thirds of Chinese exports to the United States will remain in place, though there will be a revised process for excluding certain goods from the tariffs. (Hundreds of product exclusions granted during the previous administration have expired.) The Biden administration will also use the “Phase One” U.S.-China trade deal, which was negotiated by the Trump administration, as a launch point for future conversations the administration says it plans to have with Beijing soon. 

In her speech, Tai emphasized the downsides of trade with China, pointing to what she described as a hollowed-out steel industry and the decline of U.S. solar panel manufacturing. She argued that existing tools such as the World Trade Organization’s (WTO) dispute settlement system have failed to address the fundamental challenges presented by China’s increasingly state-centric economic model. Yet, Tai disavowed notions of “decoupling” from China, saying instead that the administration hopes to rebalance the U.S.-China economic relationship and that its objective is “not to inflame trade tensions” with Beijing.

In terms of policy, the most notable departure from Trump’s approach was the emphasis on addressing Chinese subsidies and overcapacity, an issue that the Trump administration recognized but did not address in its Phase One deal. Tai’s focus on subsidies indicates that the Biden administration will place concerns with China’s nonmarket trade practices squarely at the heart of its trade policy.  

What tools can the Biden administration use to address its concerns with China?

Tai underlined the importance of investing in U.S. workers, infrastructure, and research and development programs, arguing that such investments will allow the United States to negotiate from a position of strength.

Tai also indicated a keen interest in working with allies, particularly the European Union (EU), to address mutual concerns over China’s unfair trade practices. The administration’s effort to defuse transatlantic tensions by resolving the long-standing trade dispute over aircraft subsidies and establishing the U.S.-EU Trade and Technology Council were offered as examples of this strategy in action. 

Tai offered little in the way of specifics, however, about how these investments and multilateral linkages would address the administration’s core concerns. Indeed, the Trump administration was already coordinating with the EU and Japan to craft new multilateral rules for industrial subsidies. Responding to a question about the WTO’s role, Tai emphasized the United States’ commitment to the organization, but also appeared to share the previous administration’s view that the WTO is an inadequate tool for addressing U.S. trade concerns with China. Tai said that the United States needs to “think outside of the box.” 

In the run-up to Tai’s speech, rumors swirled that the Biden administration was planning to launch a Section 301 investigation into China’s subsidies—the same authority Trump employed—which could lead to the imposition of further tariffs. Tai did not announce any new trade actions, but she indicated that the United States is willing to “deploy all tools” to defend its economic interests.  

What alternatives are there?

Despite Tai’s emphasis on multilateral coordination, there was little indication that the Biden administration will proactively seek to develop closer economic ties with allies and partners in the Indo-Pacific or elsewhere. There was no sign that the administration will look, for instance, to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), prioritize a new trade deal with Taiwan, or broaden the U.S.-Japan Digital Trade Agreement into a regional pact. 

Work on some of these issues is likely going on behind the scenes, but the administration’s hesitance to showcase it will likely be dispiriting to U.S. partners in the Indo-Pacific who have watched China guide the development of the Regional Comprehensive Economic Partnership—a trade pact joining the Association of Southeast Asian Nations with Australia, China, Japan, New Zealand, and South Korea—and file a petition to join the CPTPP.

There is also the risk that the administration’s hesitance to embrace a role for the WTO in addressing some of its concerns with China could fatally compromise the organization. This would rob the United States of a potentially valuable forum for building a coalition of countries with shared concerns that could collectively challenge China’s many practices that are inconsistent with WTO rules.