OPINION:
Presidents Trump and Biden don’t share a lot in terms of style or substance, but in two areas, continuity prevails: a commitment to limiting the risks of doing business with China and a suspicion of unmanaged, market-driven globalization.
Mr. Biden has not repealed Mr. Trump’s tariffs on Chinese imports. His policy toward U.S. allies is exemplified by the Indo-Pacific Economic framework. It eschews new free trade agreements in favor of arrangements to harmonize labor, environmental and industry standards, empower women and minorities, and promote other elements of his “woke” agenda.
U.S. limits on high-tech exports to China and industrial policies for automobiles, green energy, and the like have been characterized as attacks on the global trading system, and decoupling became a buzzword for U.S. policy toward China.
That’s an oversimplification.
From the end of World War II to 2009, trade’s share of global gross domestic product rose from 20% to 61% and has since fluctuated around 57%. U.S. trade, investment and scientific exchanges with China continue to increase, but not at the pace anticipated before the Trump and Biden presidencies.
The Biden administration has gone to considerable lengths to reassure businesses and foreign governments that it is interested in de-risking trade, not disengaging from mutually beneficial commerce. U.S. policy seeks economic ties that reflect greater sensitivity to the vulnerabilities posed by brittle, just-in-time and specialized supply chains.
The disruptions caused by COVID-19, climate change and paradigm-shifting technologies such as the internet and artificial intelligence are inspiring the White House to seek common and cooperative approaches with friends in the Indo-Pacific Framework and the U.S.-EU Trade and Technology Council, and bilateral arrangements like that with Taiwan.
Absent the carrot of market access in the form of tariff reductions, those look remarkably protectionist and risk pushing Asian trading partners into China‘s arms.
De-risking has three essential components.
Limiting the transfer of technology to China — for example, through U.S., Japanese and Dutch exports of cutting-edge chipmaking equipment — could result in weapons parity between Chinese and American forces in the Pacific.
Reducing China’s strategic leverage where it has become a dominant supplier — for example, rare earth minerals, lithium processing and solar panels.
Diversifying corporate exposure to mitigate risks from disruptions in trade that may result from wars, pandemics and natural disasters.
The COVID-19 experience has stained China’s reputation as a reliable global supplier.
After taking losses from abandoning investments in Russia with its invasion of Ukraine, multinationals such as Apple are moving to China-plus-one strategies.
The company is developing a new value chain in India and seeking to reshore some components as a simple matter of corporate risk management.
In all this, the culpability and reach of U.S. policy are limited.
A new national security law in China puts Western businesses at risk of criminal prosecution for collecting ordinary business information necessary for sound corporate decision-making.
Chinese authorities recently interrogated the staff of the U.S. consultancy Bain & Co. and raided the Beijing offices of the New York-based due diligence firm Mintz Group, arresting five of its staff.
The extremes of President Xi Jingping’s paranoia are on full display in the entertainment industry. Recently, Chinese authorities fined a talk show $2 million for a comedian’s joke about a military slogan, arrested a woman for defending the comic, and then shut down a range of unrelated live acts and concerts across the country.
Mr. Xi’s fears are without bounds and hauntingly similar to the anti-Western hysteria that Russian President Vladimir Putin has cultivated. That should give Western businesses pause about further engagement in the Middle Kingdom.
Still, many multinationals can’t ignore China. It boasts 18.5% of global GDP as measured by purchasing power, the largest market for automobiles and is growing at about 5% a year — much faster than the United States or the European Union.
Germany, the anchor of the EU economy, is more challenged than the United States by the transition to decarbonization and artificial intelligence and is terribly dependent on exports to China.
BASF, Daimler, Volkswagen and BMW account for 34% of European direct investment in China and are strongly resisting German Chancellor Olaf Scholz’s pleas to shift away from China.
Investment is often a substitute for trade — shutting down exports is of little value if Western firms simply move into China to service its markets. As the Biden administration seeks to develop an investment screening program for U.S. businesses and seeks European cooperation, the EU is plainly not inclined to go as far in shutting down capital flows to China.
Even with the best export controls, virtual autarky may be the only way to deny the Chinese and Russians what they need.
Ordinary chips in dishwashers and refrigerators can be used by the Russians to make weapons.
Cutting China off from what it needs to make first-rate weapons or insulating the West from geopolitical risks is going to be a tough climb.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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