U.S.-China Trade War: Still Going Nowhere

Although we don’t hear about it every day, the U.S. and China remain locked in a trade war. U.S. tariffs on $350 billion in Chinese products continue to impose additional costs on U.S. firms using Chinese-produced inputs and finished products as well as on consumers. Due to the COVID-19 pandemic, China has been unable to live up to its promises in the Phase One trade deal to purchase $200 billion in U.S. agricultural and other products. Meetings between the Biden and Xi administrations have not resulted in any firm resolution to the trade war, so what can be said about the trajectory of the U.S.-China trade relationship?

Meetings Between Biden and Xi

We first look at what occurred during the Biden-Xi administration meetings. Presidents Xi and Biden met on November 15 to discuss a variety of issues, including trade, which was mentioned briefly. Biden stressed the need for China to purchase additional goods from the U.S. according to the Phase One trade deal. Xi emphasized the “mutually beneficial” trade relationship between the two countries and asked the U.S. to stop using the reason of national security to “suppress Chinese businesses,” referring to the U.S. list of banned Chinese companies.

The meeting was not well accepted by the Chinese side. Qin Gang, China’s ambassador to the U.S., pushed back against Biden’s request for China to play by the ‘rules of the road,’ asking what the rules are, and who made them. Chinese Foreign Minister Wang Yi stated that the U.S. should honor commitments reached in the summit on Taiwan and spoke against the U.S. means of allying itself with other nations against China.

Previous meetings between officials in the Biden and Xi administration were not as equable. During the meeting between Secretary of State Antony Blinken and Chinese Communist Party foreign affairs chief Yang Jiechi in Alaska, the meeting opened on a negative note when Blinken started with a list of U.S. grievances against China, and Yang responded defensively and called out the U.S. for overstretching its power.

Wang Yi met with Deputy Secretary of State Wendy Sherman in July, outlining demands that the U.S. was not willing to meet. Wendy Sherman met with Chinese Ambassador to the U.S. Qin Gang in August, emphasizing the need to manage differences. While the former meeting maintained some contentiousness between the two nations, the latter meeting has been viewed as a courtesy and not a forum for negotiation.

Trajectory of the U.S.-China Trade Relationship

The Biden administration is considering reducing tariffs on some products while increasing tariffs on key items that receive Chinese subsidies. Such items may include steel, solar panels, and semiconductors, for example. The President may justify this by highlighting China’s inability to meet the requirements of the Phase One trade deal. China’s purchases of U.S. goods reached only 58% of the target in 2020 and 68% of the target for the first nine months of 2021, according to Chinese import data. U.S. Trade Representative Katherine Tai has noted that top government officials are discussing the outcome of the Phase One trade deal, including China’s shortfall of commercial aircraft purchases.

Currently, the U.S. government has allowed companies to apply for tariff exemptions on over 500 products from China. This exemption process has allowed U.S. trade with China to remain relatively steady, despite some initial impact from the trade war and COVID-19. U.S. imports from China hit a low in March 2020, as COVID forced nations into lockdown, but imports were within a normal range by September 2021. Exports to China from the U.S. reached a high point in October 2020 and remain in the normal range.