Biden's New Trade Row with China is more than just Election Gimmicks

It sounds as if the Trump-era U.S.-China trade war—which technically has never reached an epilogue—is back again. On the same day, the Biden administration called for a tripled tariff on Chinese steel and aluminum and initiated a Section 301 investigation on Chinese maritime logistics and shipbuilding practices.

The Biden administration’s decisions did not come out of nowhere. The term “overcapacity” may be a relatively fresh soundbite that the White House recently pulled out of the dictionary to address its concerns over China’s industrial policies and growth strategy, but Washington’s grievance towards China’s industrial subsidies that fuel “excessive capacities” and its subsequent “anti-dumping” measures against Chinese products, such as solar panels, has been a long-standing theme in the bilateral trade relationship that can be traced back to the 2010s—and earlier.

The Biden administration’s action targeting China’s shipbuilding and maritime logistics industries is also foreseeable. Since the very beginning of this administration, it showed high interests in the shipping and shipbuilding industry. The administration repeatedly accused Chinese and other shipping companies’ practices for stirring up inflation in the U.S. It also expressed high concern about the dominant number of Chinese-made cranes in U.S. ports.

Three days prior to the announcement of these actions, Secretary of Treasury Janet Yellen, who recently completed her trip to China, warned that nothing is off the table to respond to China’s overcapacity.

What was surprising about the Biden administration’s announcements is the timing. The announcement came just a day after the first talk between the two defense chiefs in 18 months. The hope to improve the bilateral relationship on a stable ground was teared up by the announcement of the tariffs and Section 301 investigation as China quickly pointed its finger back with strong words from both its Ministry of Commerce and Ministry of Foreign Affairs. This means that during Secretary of State Anthony Blinken’s stay in China, nothing is really offered beyond Beijing’s “welcome,” recommitment to the San Francisco consensus, and a basketball game. No wonder why Blinken, in addition to his already tough stance on Ukraine and Gaza affairs, could only continue to wave the “big stick” on overcapacity issue and conclude another fruitless journey.

It is also counter intuitive that the Biden administration suddenly turned to the Trump-era trade tool box—which primarily contains tariffs, with a pinch of plenary, retaliatory fees—for help. 

To get the economic common sense straight: The 6-year-long trade impasse since the Trump administration is a clear testament of the shortcomings of tariffs. Not only did those tariffs fail to address America’s overall trade deficit concerns, neither did it reduce the U.S. reliance on Chinese-manufactured products, nor did it help boost U.S. jobs and revitalize U.S. manufacturing capacity. The Biden administration is fully aware of the limit of tariffs. USTR Katherine Tai repeatedly contended that tariffs alone could not properly address the various issues concerning the U.S.-China bilateral trade relationship, and therefore called for “new tools” to deal with China’s trade problems, whatever the new tools may be. 

Nevertheless, with eight months left in its first term, the Biden administration eventually decided—or at least wants to appear like—that they are going to strengthen their protectionist, albeit not effective, trade agenda, at the expense of the U.S.-China bilateral relationship that has just begun to show signs of stabilization.

What caused such a drastic shift in policy making? Why did the Biden administration suddenly reignite a trade row with China?

The obvious answer is the upcoming election. As incumbent President Biden tied with former President Trump in national polls and as Trump gained lead in key swing states, winning over the blue collar worker support and the swing states is critical to President Biden.

Ever since President Biden began his reelection campaign, he had put strong emphasis on the American manufacturing workers. In addition to his overall  “worker-centered trade agenda”, he has repeatedly supported manufacturing workers in the automobile industry, the shipbuilding industry, and especially the steel industry.

That paid back. The President won his endorsement from the United Steelworkers union. A week after, Biden announced his opposition to the planned sale of U.S. Steel to Nippon Steel of Japan, days before Japanese Prime Minister Kishida visited Washington to deepen Tokyo’s cooperation with the States. Whether Biden could eventually block the sale or not, the timing of his announcement brings negative influence to the U.S.-Japan bilateral relationship, when the two countries need to work with each other to address the China challenge. 

The President revealed his call for hiking tariffs on Chinese steel and aluminum in Pittsburgh, the “Steel City” down the swing state of Pennsylvania, in front of the blue collar American steelworker. During the same campaign speech, the President called China “xenophobic” with little consideration of past and ongoing diplomatic efforts to stabilize the U.S.-China bilateral relationship. If the Biden administration is willing to undermine the critical U.S.-Japan partnership in exchange for its blue collar support, then it is not surprising that they recklessly risked the U.S.-China bilateral relationship for reelection.

That said, Biden’s reignited trade row with China is more than just the election gimmicks. The less obvious answer to the sudden shift in the Biden administration’s actions lies in two areas of concerns: the geostrategic competition with China, and the balance between industrial policy and the economic outlook.

To put election votes aside, the steel industry, together with the shipbuilding industry, are strategically important to the geostrategic competition with China. Steel and aluminum are vital components of almost every manufactured good. Without a strong steel and aluminum industry to serve as its foundation, it would be impossible for the U.S. to build strength to compete.. That also applies to the shipbuilding industry. While it is rather difficult and against economic common sense for the U.S. to revitalize its badly declined shipbuilding industry, the Biden administration’s obsession with shipbuilding overall does align with the greater context that the U.S. is urgently seeking to boost its shipbuilding capacity to match China’s pace.

Secretary of Navy Carlos Del Toro recently touted America’s collaboration with Japan and South Korea to ensure timely delivery of new warships. The U.S. also seeks to revive its idled shipyards with the help from the two partners. To use protectionist policies and defend its aging shipbuilding industry is just the first step of that bigger picture. If the U.S. continues its strategic competition with China, the competition for sea communication and control has just begun. For better or worse, it is still a long and tough journey ahead.

A competition with China also requires a stable and strong U.S. economy, which is currently at question.

Prior to the trade row, President Biden’s approach to revitalize the American industrial base has been primarily relying on subsidies. Both the CHIPS Act and the Inflation Reduction Act (IRA) contain strong elements of government subsidies that triggered opposition from not only China, but also the EU. However, the efforts to “out-China China”—following China’s heavy subsidy model to elevate the playfield—does not necessarily work out for the U.S. given its current economic outlook. The fragile balance between industrial policy and the economic outlook is also another angle to assess the Biden administration’s sudden shift back to tariffs. 

Huge government spending during post-COVID recovery is already causing serious inflation in the United States as the economic growth slows down. The U.S. financial system is under huge pressure to keep a high interest rate, which adds fiscal pressure and poses risks to financial stability. While the Fed continues to push back the date for interest rate cuts, the equilibrium is near. It will be disastrous for the Biden administration to further expand its fiscal spending given such an economic outlook as a successful economy may be the only magic weapon for Biden to win over Trump during the election. 

While it is in desperate need to protect the American domestic manufacturing base, another wave of fiscal policy support, i.e., subsidy, does not play well under the current economic condition. Hence tariffs and quick fees from China—albeit a short term and ineffective tool—became an emergency tool for the Biden administration to sustain its “Build America, Buy America and Investing America” agenda against China.

For election and competition purposes, Biden’s new trade row showed that his administration only wants to keep a minimum level of bilateral engagement.Both sides of the Pacific need to brace themselves for consistent deterioration of the bilateral relationship over the next eight months.