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The Biden Administration on the US-China Trade War

The Biden Administration on the US-China Trade War

U.S. Trade Representative on the Trade War

US-China Trade War Biden Administration

 

All eyes are on President Joe Biden’s administration, and specifically newly elected U.S. trade representative, Katherine Tai, in anticipation of the United States’ next steps in the US-China trade war. Tai, confirmed at the end of February, made it clear that the administration is determined to achieve structural changes in China’s economy by “exploring all our options”. She intends to accomplish this through intentional systematic processes and a regulatory-driven approach. Tai exemplified these qualities during her confirmation hearing when she answered senators’ questions with control and displayed her understanding of what needs to be accomplished.

 

What has the Biden Administration Accomplished?

 

Thus far, the Biden administration has made no changes to tariff structures. However, Biden did sign an executive order in February to examine global supply chains in four key industries that were greatly affected by the COVID-19 pandemic and simultaneously the U.S.-China trade war. The industries include computer chips, large-capacity electric vehicle batteries, pharmaceuticals, and critical minerals in electronics. 

 

This marks Biden’s first and formative action surrounding his administrations’ supply chain strategy. The 100-day government review is clearly intended to understand the past and avoid repeat mistakes in the future. Mistakes including but not limited to shortages of personal protective gear, shipping containers, and other essentials. The equally critical goal of the review is to discern to what degree industries are at risk and, eventually, how to move suppliers out of potentially vulnerable situations.

 

Biden is seeking to hold himself to the campaign pledge of investing in America while also attempting to secure goods from friendly nations. One of the ways the administration has supported domestic production in their first few months has been to award a $30 million contract to Australia’s Lynas Rare Earths for the construction of a processing facility in Texas. Additionally, Biden said he would seek more diverse domestic production, maintain a reserve of goods and materials, and positive partnership with allies.

 

How does the Review Reflect the Biden Administration?

 

While the comprehensive review does not promise imminent resolution of the trade war, it has set the precedent that the current administration has a definite sense of urgency to face the supply chain challenges that have been exacerbated due to the COVID-19 pandemic. Undoubtedly, there is no short-term solution for these struggling industries but the Biden administration believes the first step to recovery is through internal reflection and securing supply chains to reduce dependence on China. 

 


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Phase One of US-China Trade Deal Reduces Tariffs

Chinese and American Exports See Decrease in Duty Rates

As part of a Phase One Economic and Trade Agreement between the United States and China, signed on January 15, 2020, both countries have halved tariffs on many imported goods. The relevant duty reductions were applied on February 14, 2020.

China’s reductionsus-china trade deal will affect only the extra tariffs put in place on American imports last September. Tariffs on U.S. crude oil will drop from 5% to 2.5%, while total duties on soybeans are reduced from 30% to 27.5%. In total, this will affect roughly $75 billion of exports from the United States. China’s Ministry of Finance announced the reduction and stated it was designed to “advance the healthy and stable development of China-U.S. trade.”

Similarly, a White House spokesman stated the China trade deal “protects American innovation and creates a level playing field for our great farmers, ranchers, manufacturers, and entrepreneurs.” As of February 14, the U.S. has cut duty rates from 15% to 7.5% for a wide variety of goods, including any imports which fall under List 4A. These Chinese imports account for about $120 billion of goods. For List 4B, planned additional duties of 15% have been suspended. However, an additional $250 billion of goods will retain a 25% tariff, including Lists 1, 2, and 3.

For updated duty rates for all lists, see STR Trade’s compilation.

Effects of the China Trade Deal

International trade relationships with China have also been recently affected by COVID-19, which has shut down factories, seriously reduced the efficiency of ports and delayed supply chains across Asia. Former Macy’s CEO Terry Lundgren has stated that the combined effects of coronavirus and the Chinese trade war have revealed the retail supply chain’s potentially detrimental reliance on China. Similarly, American technology companies including Apple and Google are looking to reduce their reliance on China’s production. Supporters of the administration’s efforts agree that the trade war was a necessary step in forcing a shift away from dependence on Chinese production.

Most business leaders, including executives from Goldman Sachs Group Inc., Intel Corp., and Boeing Co., are in favor of the new trade agreement, though they hope these negotiations will continue.

In contrast, the deal has been criticized as being harmful to privately-owned businesses in China who can’t afford the more expensive American imports, allowing state-owned enterprises more market power. Additionally, as the agreement requires China to purchase $200 billion of American goods within two years, government-subsidized SOEs are likely to increase their share of imports. Critics of the China trade deal say this is counterintuitive to the Trump administration’s focus on reducing SOE’s influence over the economy. Trump trade advisor Peter Navarro has stated that these state-owned enterprises will be the target of “phase two” trade talks.

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