The Biden Administration’s Emerging Economic Approach on China

On January 20, 2022, President Joseph Biden marked his first year in office as the 46th president of the United States. At this time last year, observers had likened his ‘Build Back Better’ agenda to President Franklin Roosevelt’s ‘New Deal’. Both were forged at a time of record unemployment and economic despair. Both paid obeisance to the firm hand of an activist state. The ‘New Deal’ aimed to pull the U.S. out of the Great Depression through massive government programs; the ‘Build Back Better’ agenda aims to spend trillions of dollars to—quoting the President—“rebuild the backbone of the country” and “grow the economy from the bottom up and the middle out.” One year in, President Biden hasn’t quite been the second coming of Franklin Delano Roosevelt but he has been the closest thing to him in almost eight decades.

At this time last year when Mr. Biden assumed office, a number of questions had also swirled on the horizon of U.S.-China trade and technology ties. Would President Biden rescind or modify the technology controls that his predecessor had imposed from May 2019-on in order to constrain, if not suppress, China’s rise? Would he steer the U.S. government away from its decoupling-based theories and press China instead to keep structurally opening up and reforming its domestic marketplace? And more broadly, would the Biden administration’s China trade, technology and investment policy approach mark a break from the Trump administration’s hostile approach towards Beijing?

In the event, the Biden administration’s policy approach towards China bears large similarities with the Trump administration’s approach. The elements of continuity far outweigh the points of divergence. Only in the area of strategic industrial policy (i.e., state activism and intervention to steer the industrial economy towards specific industries) does the Biden administration’s approach differ markedly from that of its predecessor. Fixated as the Trump presidency was on a punitive, leverage-based strategy vis-à-vis Beijing, it failed to pay due attention to making the necessary strategic industrial policy investments at home.

The continuity in the Biden administration’s trade, technology and investment policy approach towards China is most acutely evident in the area of technology controls. During its last 18 months in office, the Trump administration had issued a veritable blizzard of executive orders and rulemaking intended to bar Chinese access to high-tech items, notably chips and chipmaking equipment, and thereby initiate a process of selective decoupling of the U.S. and Chinese economies. Many of these orders had been drafted in haste, and the Biden administration spent much of the first half of 2021 sorting through these orders and rules. Its ensuing remedies ranged from the outright voiding of a deeply compromised Trump-era order to the methodical stripping-out and revision of deficient provisions within a Trump-era rule to the amplification, not narrowing-down, of scope and coverage of a Trump-era order. Overall, though, the Biden administration retained both the overarching purpose as well as the kernel of the Trump administration’s approach on technology controls: it sought not so much to encourage China to cooperate and abide by rules-based, pro-market standards as it sought—and continues to seek— to constrain China’s technological rise.

As for the Biden administration’s “new approach” on trade policy towards China, unveiled by United States Trade Representative (USTR) Katherine Tai in an important speech in early October 2021, it can best be summarized as ‘old wine in a new bottle.’ The approach is awfully similar in substance, although not in tone, to her predecessor’s approach. In her remarks, USTR Tai had made two overarching points. First, that trade and tariff policy was a component of the administration’s broader worker-focused agenda and that trade policy would take a relative backseat until the administration’s infrastructure-building, competitiveness, and worker training agenda had been put into motion. Second, that the U.S. did not seek to decouple from China but would rather insist on reframing the terms of its ‘recoupling.’ On the immediate trade and tariff policy challenges concerning China though—the future of the Phase One trade agreement; negotiation of Phase Two ‘structural’ issues; readjustment of Section 301 tariffs; ‘architecture’ of USTR’s engagement with Chinese counterparts, etc.—the Biden administration continues to remain, both, reticent and indecisive. And to the extent that clarity has been provided, it bears more in common than differs from the Trump administration’s policies. The Biden policy team’s constricted focus on trade enforcement and inability to spell out a concrete agenda of regional and multilateral trade liberalization so far is also a matter of concern.

Strategic industrial policy has been the one key area of difference between the Biden administration and the Trump administration’s economic policy approaches towards China. Framed in the context of outcompeting China in this new era of “extreme [strategic] competition,” the Biden administration’s planned interventions under its Supply Chain Resilience plan are geared to utilizing existing statutory authorities to encourage and expand the domestic advanced manufacturing base, especially for critical supply chains (semiconductors, large-capacity batteries, critical materials, etc.). The range of envisaged Executive Branch policy interventions extends from a mix of investment incentives; research, production, as well as consumer-facing tax credits; matching cost-share grant and loan programs; expanded procurement preferences; selective imposition of import tariffs; support for basic and applied research; and the leveraging of government-sponsored IP to promote the diffusion of manufacturing technologies. At this time, important China competitiveness-related legislation is also awaiting action on the Hill. During the Trump years, there was precious little political capital invested in these lines of effort, aside from the imposition of blanket tariffs across wide swathes of the manufacturing economy to provide protection from Chinese imports.

All told, the Biden administration’s agenda constitutes one of the most ambitious and activist efforts to forge economy-wide ‘industrial policy’ outcomes since the end of the Second World War. Only time will tell whether this effort has been effective in revitalizing the U.S.’ manufacturing economy as it races to outcompete China in the key advanced technology-enabled sectors that underpin the Fourth Industrial Revolution. Hopefully, during the interim, this ambitious industrial policy effort will also incentivize the administration to take a relook at its lagging trade liberalization strategy as well as its heavy-handed technology controls policies that could inadvertently lead to the ‘designing out’ of certain important U.S. technologies from global supply chains.