By Clifford Pulley III, DINSN National Security Fellow
Date: January 22, 2021
A superpower trade war between China and the United States is moving into its third year in 2021. The United States, despite the Trump Administration’s bold predictions, has not fared nearly as well as China has. By the end of 2020, China’s overall surplus raised 27 percent for a total of 535 billion dollars. The exponential increase in demand for personal protective equipment (PPE) and home office supplies as a result of COVID-19 allowed China to increase its exports to the United States by 7.9 percent and other parts of the world by 3.6 percent. As businesses are reevaluating whether or not to return to working in the office to continue working remotely—furthering increasing the demand for home office goods. Notably, the main goods that were exempt from the tariff list throughout the trade war included PPE, and exempt companies have given China the comparative advantage to produce the goods at the lowest price—which in turn has contributed to the overall surplus.
The United States needs comprehensive policies to address the unfair trade deal between the United States and China. Thus far, the American taxpayer has had to pay more than their usual share to cover the cost of a financial aid package for the agricultural sector in the United States. The new administration should reduce tariffs 232 (Trade Expansion Act) and 301 (Trade Act of 1974) from 25 percent to 15 percent to provide room for negotiations and allow the Biden-Harris Administration to review the current tariffs that have been placed on the tariff list. Reducing the number of tariffs on the list will allow US firms to reevaluate their dependence on China. The reduction will also allow the two countries to work towards an agreement that will stabilize both markets, which will bring them to their previous levels pre-tariffs, spur conversations for additional goods to be sold in China, and gain more market share.
While entering into negotiations with China regarding the trade war should be at the top of the Biden-Harris Administration’s list, there is a risk that this negotiation could result in the loss of bargaining power. Not reducing the goods from the list could also allow the Chinese government to say that America started the trade war and is unwilling to re-negotiate a deal for all goods to be removed and or reduced from the list. In the trade war with China, less really is more.
Trump has been able to rally his base to support him, even as the exports of agriculture, auto parts, and unfinished goods have negatively impacted the very ones who voted for him. It is striking that people support this Administration even after they have lost their jobs due to the trade war and face even more hardships with the impacts of COVID-19. The reduction of prices in agriculture, meat, and other product goods in the U.S. has negatively impacted the economy.
To his credit, Trump’s messaging has been incredibly effective throughout the trade war. By claiming that the deal with China was not a “fair deal” and continually repeating this to the American people has been very successful in turning his base against China. But Trump poorly executed his plans for an effective trade negotiation with China. Without a detailed negotiation plan, the Trump Administration has been unable to successfully negotiate a comprehensive deal with China. Notably, at the time, the Speaker of the House did not support this deal because the aid package was created to fix a Trump-induced problem. An agreement was reached, but it did not address the major issue at hand—the trade war. The deal allowed China to purchase $16 billion dollars worth of goods and allowed additional room for future negotiations to take place. The Chinese government (CCP) blames the United States for the current trade war. As the number two economy in the world, China directed its buyers to not purchase any agricultural goods from the U.S. The Chinese government has also purposefully allowed its currency to depreciate to levels not seen since 2008, making it cheaper for businesses to operate in China than in the U.S.
The stance of the incoming Biden-Harris Administration is to review the tariffs that have been put in place by the previous Administration. Even though these tariffs are bad, the US is in no place to change them right away. Members of Congress have lobbied to keep the protections in place due to a fragile United States economy due to COVID-19 and an increase in cases around the country. Without protections in place, first American businesses will pay higher taxes and then be forced to increase the tax for American consumers, who are already struggling to make ends meet during high rates of unemployment amid a pandemic. The Biden-Harris Administration provides hope that has been nonexistent during the Trump era—the hope that relations can be mended and this trade war can finally come to an end.