Biden called the imposition of sanctions and duties on China “not a prerequisite” for relations with the country. Analysts are assessing the possible consequences of these intentions from various perspectives: from the prospect of normalising relations to an attempt to abandon all “the achievements of the Trump team”.
A rejection of harassment of Huawei, TokTok and WeChat would be a gift to China
US presidential candidate Joseph Biden has said that imposing sanctions and duties on China is not a prerequisite for America’s foreign policy and economy. He told TASS that the government’s actions were aimed at helping China understand that it has to play by the rules.
At a press conference in Wilmington, Biden was asked whether he was prepared to resort to the above-mentioned measures after he took office as U.S. president. He replied that America and its allies must agree on a common understanding of the rules that China must abide by as well. The politician also announced other policy changes: such as a return to the World Health Organisation.
Joe Biden’s latest statements show not an end to the US-China confrontation, but an invitation to Washington to “play by the rules” written by the “civilised world”, believes Mikhail Dorofeev, chairman of the board of Renewal CCP. But there is a chance of a shift from confrontation to rivalry and predictable pressure, which may well suit China, which is focused on realising its domestic ambitious goals.
The duties imposed by the US on Chinese goods may become a bargaining chip, the expert believes, and their removal is conditional on the implementation of structural reforms imposed by Washington: opening the domestic market to foreign companies, ending exchange rate manipulation, subsidising state-owned enterprises. Here, Beijing is likely to be displeased only by the reluctance to take its position into account and the push to accelerate reforms.
At the same time, Mikhail Dorofeyev believes that the issues of human rights protection, especially the rights of ethnic minorities, the situation in the South China Sea, Hong Kong and Taiwan, the issues of technological espionage and intellectual property protection will remain the stumbling blocks. There is unlikely to be a breakthrough in these aspects.
But the refusal to harass Huawei, Bytedance (which owns TokTok), WeChat – potentially including Alibaba on that list – would be a gift to China and a weakening of its negotiating position. However, this will hit Biden’s ratings, the expert says, as there is a consensus in society and among the political establishment on the need to put pressure on China. According to Pew Research polls, that is the position held by 78% of Americans.
Eventually, only the approach will change, Mikhail Dorofeev is convinced. Instead of Trump’s “bullying” and unpredictability bypassing international rules – working through coalitions with allies and international organisations. 70% of entrepreneurs surveyed by the US Chamber of Commerce in Shanghai expect this development and only 5.6% expect an additional increase in duties. In 2021 some sort of thaw may be attempted, which will be prompted by the need to cooperate on fighting pandemics and global warming as well as on relations with Iran and North Korea.
But in the long term, the status quo will remain, the expert adds. China has challenged the US to become a leader in terms of GDP at purchasing power parity in five years’ time, and at the expense of technological modernisation. The US is not willing to put up with it, all the more so because part of this success, as Washington believes, is based on the know-how of American companies. Biden campaigned on the slogans of home production and maintaining technological supremacy. In this, he is not the opposite of Trump.
Biden’s comment had zero effect on markets, which is understandable, notes TeleTrade chief analyst Peter Pushkaryov: Trump’s repeated mantra, as if he would really punish China for the pandemic, has always been seen as a common rhetorical posturing in an election year, But to put it in any perspective, Biden’s position seems to be that he is not ready to discuss any of his, or the general rules of the game with China at all, except for the “we’re not touching you anymore, and do whatever you want” rule.
The analyst believes that the Democratic administration is ready to “pipe down” all the national achievements of the US over the last four years in building a coherent trade relationship with China. And it is clear that Biden’s team is neither capable of, nor overly willing to, deliver on a comprehensive “grand bargain”. The issue of financing for WHO is not in itself a crucial one, but it shows that not only does Biden not have a rock in his hand, he is not going to stockpile any other pressure tools.
Before Trump came, the picture looked almost dystopian of America accumulating more and more trade deficits and China accumulating dollar surpluses exclusively and uncontrollably. The Trump team’s harsh but effective attempts certainly did not immediately reverse the balance sheets, but they were at least able to halt the process that was leading the dollar-based financial system to a dead end, believes Peter Pushkaryov.
If the achievements to even somewhat balance the trade are nullified by the team ready to occupy the White House, the “dam” will not be created, capable of withstanding the wave of noticeable devaluation of the dollar at the right time: because with the intense work of the “money printer” of the Fed, the entire monetary policy of the USA will be reduced to the ostrich position of financing the deficit abyss by raising new volumes of debt.
But without proper balancing of imports with exports, the U.S. “treasury” will simply stop attracting enough new willing to consider them as a practical defensive tool, believes Peter Pushkaryov. And capital will flow en masse to other jurisdictions. These trends had already started to prevail by the end of the Obama administration, but now the Democrats risk derailing the process permanently, making capital flight from the U.S. irreversible: eventually they will not get enough money from foreign trade or from new borrowing to finance all their economic plans.
And if this scenario starts to be confirmed, both the currency and stock markets will be much more stressed than Trump’s so-called ‘trade wars’, which the exchanges have already stopped fearing, the expert believes. Negotiations with China only initially and briefly had a negative impact on quotations, but at least they gave America hope that in 10-15 years they would start living within their means.