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CSIS Commentary
A Complex Inheritance: Transitioning to a New Approach on China
Special Contribution
By Scott Kennedy
The Trump Inheritance on China

The incoming Biden administration will inherit four major crises — the pandemic, climate change, racial injustice, and a fracturing political system. It will also face a US-China relationship that is very different from the one President Obama and President-elect Biden bequeathed to the Trump administration four years ago. Figuring out how to manage this inheritance will be the chief foreign policy challenge of the new administration.

Since 2017, America’s China policy has shifted sharply away from patient multilateralism and integration toward impatient unilateralism and decoupling. Some believe that the incoming Biden administration will have little room for maneuver. This is in part because of Beijing’s intransigence and the many signals China has sent that it intends to double down on domestic repression, state capitalism, and external assertiveness. And it is in part a consequence of the flurry of restrictions and penalties enacted in the waning months of the Trump administration meant to make it politically impossible or technically difficult for the incoming administration to roll back. Given that strategic rivalry increasingly appears to be locked in, the only question by those who hold this perspective is whether the Biden team can more efficiently and effectively pursue the same agenda.

A return to an era when profound disagreements, such as over Taiwan or human rights, did not get in the way of extensive cooperation is not possible or advisable for the foreseeable future. A China that is ideologically radicalized under Xi Jinping, more powerful, and aiming to dominate the commanding heights of the global economy means a decline in overlapping interests between Washington and Beijing. However, the Biden administration has a greater opportunity for policy innovation on China than many appreciate. There are two steps to escaping the confines of a Trumpian approach. The first is a willingness to fully evaluate the existing approach’s assumptions, tools, and outcomes and, on that basis, define a new approach; the second is a systematic plan of how to get from Point A to Point B, which will require deciding which existing policy measures to keep, which to reform, and which to discard entirely.

Why Change Is Necessary

The most important reason to change direction is that the Trump administration’s approach failed. Although the departing team deserves credit for loudly sounding the alarm bells on the dangers presented by a Xi Jinping-led China, on many issues but particularly on economic ones, it did not address that challenge with effective policies that changed the facts on the ground in America’s favor. The United States’ trade deficit with China at the end of the Trump administration will be roughly where it was at the end of the Obama administration, at over $300 billion. Under the weight of the trade war, even before the pandemic, US exports to China have stagnated or fallen in many categories, including in agriculture, energy, and high-ticket manufactured goods, such as commercial aircraft. Services exports, such as education and tourism, have plummeted. And contra President Trump’s assertion, the full burden of the Section 301 tariffs, most of which are still in place, has been borne by US importers and consumers, not Chinese exporters.

The administration’s brinksmanship yielded the modest Phase One deal, which contained a range of admirable but incremental reforms akin to the kind of concessions previous administrations had obtained without the same level of disruptive rancor. It left China, Inc.— and its array of industrial policy tools — fully intact. Equally problematic, the deal’s highlight, the $200 billion purchase agreement, was a disaster: it endorsed managed trade and Chinese state interventionism, all the while setting unrealistic targets that China predictably never came close to meeting.

In the Phase One deal’s modest wake and following the outbreak of the pandemic, the administration shifted its attention to decoupling the two economies, with a blizzard of restrictions in technology, trade, investment, finance, and travel. Some of these actions have reduced US vulnerabilities, but they have been adopted haphazardly with little consideration of the economic costs and, frankly, insufficient analysis of their supposed benefits to US national security. At the same time, Beijing is tripling down on technology self-reliance and has blunted US efforts to isolate it by forging new trade and investment deals with its neighbors and Europe. Combined with the United States’ own rejection of the Trans-Pacific Partnership (TPP) and broadsides against other multilateral fora, the United States may be in greater danger of being isolated than China. The growth of US equity investment in China has slowed, but few companies have withdrawn entirely; there has been no great wave of on-shoring and no resultant expansion of US manufacturing or high-wage employment. Meanwhile, Washington has neglected America’s own economic foundations, social safety net, and high-tech innovation system.

A China that ignores the rules, does not provide reciprocity, and is a threat to the international order requires a clear-eyed and firm response from the United States, but it does not justify policies that do not work simply because they can be labeled “tough.” The Trump administration has thus left a largely failed approach that its successors should overhaul.

The incoming Biden administration appears to recognize these deficiencies. It has stated that it will make significant adjustments in its frameworks for both domestic and foreign policy. Critically, it seems to genuinely understand, not just mouth, that the competition with China is not merely a raw contest over power but between fundamentally different economic and political systems and visions of the international order. And contra Trump’s nationalist approach, the incoming administration has emphasized that it will pursue greater collaboration with allies and like-minded countries around the world. While it is unsatisfied with the status quo within many international institutions, it will seek to build and reform—not freeze, dismantle, and abandon.

This shift is rooted in a belief that more proactive US leadership and multilateralism is necessary to meet the risks and dangers posed by China as well as expand opportunities to support the US economy, strengthen U.S. security, and promote American values. The consequence of this strategic shift means that even where the Biden administration decides to retain specific measures on China, their broader significance will change. Weapons to drive decoupling may instead become tools for risk mitigation and defending the US-led order’s underlying principles.

Finally, whatever one thinks of broader strategy, there is a clear need for a whole variety of practical reforms of both tools and organization. Many of the tools the Trump administration used to counter China, particularly on the defensive front, were originally created for other contexts and need to be adjusted to maximize their effectiveness.

Hence, the transition from one administration to the next should not simply add up to more or less decoupling with China but potentially a new conception of the relationship and how it fits into the larger plans the administration has for the country and the world at large.

Getting from Point A to Point B

But to make this shift, the Biden administration first must decide how to handle a bevy of measures bequeathed to it by the Trump administration. Over the course of four years, but particularly since April 2020, the administration has imposed dozens of restrictions on every aspect of the relationship. Often summarized as “decoupling,” their purpose has been to isolate China, erode its economy and other foundations of power, and protect the economic and security interests of the United States. If given a blank slate, the Biden administration might not have adopted many of these measures. But they are in place and cannot be ignored.

To successfully transition to a new and more effective China strategy, the various existing measures should not be treated in the same way. Instead, they can be sorted into four categories (see below figure), each of which should be handled differently.

Unilateral Multilateralism

The first group is composed of actions the Biden administration should unilaterally eliminate without even engaging in negotiations with others. These measures have damaged the United States and its relationship with its allies, with no compensating economic or strategic benefit. Reversing these policies will begin the process of repairing those ties and strengthening the United States’ influence in multilateral fora. Fortunately, the Biden administration has signaled that it wants to support the World Trade Organization (WTO) and not undermine it, rejoin the Paris Agreement, maintain US troops in Europe and Asia, rejoin the World Health Organization (WHO), and return to the Iran nuclear deal. Taking these steps early will help clarify that the world’s most serious challenge is China, not US allies and the international institutions they helped build.

The lone question-mark in this category is whether to leave in place the Section 232 tariffs, first imposed on steel and aluminum imposed in March 2018 against a range of countries, on China and Russia. Though the tariffs may have helped these industries, they have raised costs for downstream industries and consumers, generated pressure for more tariffs on related goods, and damaged relations with allies. Since there are still concerns about China and Russia dumping their excess steel abroad, it makes sense to keep the tariffs against them in place while eliminating those against other economies. At the same time, the United States should engage in discussions with allies about how to handle overcapacity challenges in steel, other traditional commodities, and even high-tech products going forward. The Organization for Economic Cooperation and Development’s (OECD) Global Forum on Excess Steel Capacity has been a toothless failure, and a new approach is needed soon.

Isolate China

At the other end of the spectrum (in red), the Biden administration needs to maintain and, in some cases, expand restrictions where Chinese actions are beyond the pale and violate basic principles of human rights, threaten intellectual freedom, or flout the law. This applies most clearly to human rights. The Trump administration, led by the State Department and Treasury, has implemented a series of sanctions in response to repression in Xinjiang. It announced an initial package of sanctions with regard to Hong Kong in July 2020 and has followed up with more steps since, for example, by targeting individual officials responsible for eroding the city’s high degree of autonomy. The incoming administration should go further by making human rights a presidential priority and expanding restrictions where possible. One new approach may be to no longer recognize Hong Kong (and Macau’s) membership in international organizations, given that they have no more autonomy than any other Chinese city. Sanctions may also be warranted with regard to other ethnic regions, such as in Inner Mongolia, where abuses are expanding.

The administration also needs to maintain restrictions and vigilance on dangerous Chinese behavior within the United States. This includes moving forward without delay on de-listing any Chinese firm listed on US stock exchanges that do not accept full oversight by the Public Company Accounting Oversight Board (PCAOB). For reasons of national security and reciprocity, the revocation of operator licenses for Chinese telecom carriers should remain in force. And although the fears about communist brainwashing through Confucius Institutes are overblown, closing down these programs, which are financed and directed by the Chinese government, on US university campuses makes good sense. It is more important than ever to raise US understanding of China and competency in the Chinese language, and this problem could be solved by simply fully funding Chinese-language study through domestic sources.

Bilateral Stabilization

Although rebuilding confidence among US allies and being tougher on China in certain areas have their challenges, far more complicated are issues that fall in between these extremes, which should be divided into two other separate categories: bilateral stabilization and modified restrictions and reforms.

There is one set of policy tools that a Biden administration likely never would have used, and the administration should find a way to change course. This category includes: rolling back the Section 301 tariffs; ending the tit-for-tat expulsion of journalists; reopening the Houston and Chengdu consulates; ending the dispute over the attempted extradition of Huawei executive Meng Wanzhou and the arbitrary detentions of Canadians Michael Kovrig and Michael Spavor; removing the threat to ban WeChat and TikTok; eliminating plans to issue shorter visas for Chinese Communist Party (CCP) members; and restoring the Fulbright and Peace Corps programs in China.

These measures have hurt the US economy, eroded US soft power, done little to advance US national security, and damaged the United States’ relationships with allies, all without imposing substantial costs on China. For example, the United States needs to protect Americans’ internet user data from the Chinese government and oppose censorship but banning WeChat and TikTok in the United States are token measures, not genuine solutions to these challenges. The same applies to the Meng case. The plan to extradite her was ill-conceived and predictably led China to retaliate, hurting the United States’ relationship with a key ally while politicizing international law.

Removing these policies may help stabilize US-China ties. That said, taking these steps should not be done unilaterally but rather through bilateral negotiations in which China either reciprocates or addresses the US concerns that prompted the restrictions to begin with. For example, the administration should not settle for China merely reinstating the visas of expelled US journalists in exchange for doing the same for Chinese journalists. Instead, it should seek verifiable commitments from China to allow US journalists (and their Chinese staff) to work unencumbered. (Beijing’s forthcoming hosting of the Winter Olympics may be an opportunity to obtain this result.) Restoring consulates should come with the clear understanding that they will not be platforms for espionage. It is quite possible that China will not be sufficiently cooperative, and so it is possible some of these measures will remain in place. That should not deter the Biden administration, though, from attempting to make progress in the first place.

Modified Restrictions and Reforms

The final category of policies is the thorniest, as it is composed of steps a Biden administration might not have adopted on its own but that nevertheless align with broadly held concerns about the downside risks of both bilateral engagement, particularly with regard to advanced technology, as well as the basic rules defining China’s engagement with the rest of the world. The challenge will be for the administration to figure out how to improve the specific policy instruments domestically and find greater alignment with its allies in Europe, Asia, and elsewhere.

The Trump administration’s offensive on technology initially centered around a single company, Huawei. Banning its equipment in US 5G networks and restricting exports of certain U.S. technologies to Huawei likely make sense, but over the longer term, the United States and its allies need to develop a comprehensive certification and monitoring system for trusted products and services that applies worldwide, including to Chinese producers. The United States also needs to reevaluate the benefits and downsides of the “foreign direct product rule” (FDPR), which in this case, starting in May 2020, extended export controls on US-based firms to any company, US or otherwise, producing goods from outside the United States. Invocation of extraterritoriality needs to be done extra carefully because of the effect on US allies and the precedent it sets for others, including China.

The US Commerce Department has added over 400 Chinese companies to its traditional Entity List and another one for military end-users, while the Department of Defense has identified over 40 companies it claims are controlled by the Chinese military. It is worth reevaluating not only the decision on individual companies but the entire system and their procedures. The Trump administration dramatically broadened the basis for being targeted, from asking whether a US exported product could harm US national security if it got into the wrong hands to whether companies could not be trusted because they were Chinese and subject to Beijing’s control. The combination of the Pentagon’s lists of “Communist Chinese military companies” and the president’s executive order from November 2020 banning US investments in such firms goes one step further, suggesting that any US connection to Chinese firms that do business with the Chinese military are entirely off limits. These individual steps add up to a large leap, and the Biden administration needs to evaluate and set standards that appropriately protect national security, can be implemented together with US allies, and, if adopted by China, would at least in principle not be objectionable.

Equally important is the need to coordinate and align the wide range of tools at the administration’s disposal. Tariffs, entity lists, investment screening, financial sanctions, fair-trade tools, and competition policy are overseen by different agencies; there is good reason for specialization, but more could be done to ensure these measures operate in unison to serve the broader national interest.

The Trump administration, through the Department of Justice’s China Initiative, also puts a great deal of energy into rooting out Chinese espionage and cyber theft, particularly directed at US industries and institutions of higher learning. These efforts are sorely needed and will likely have to be expanded. At the same time, it is important to proceed without demonizing any racial group and to not unnecessarily squash academic and research exchanges between the United States and China that help generate new innovations and promote greater Chinese appreciation for the United States, all of which can strengthen US economy and national security. A key step going forward will be to further develop more robust oversight of exchanges by those who participate in the process themselves — universities, foundations, non-profit organizations, and companies — with the aim of reducing the incidence of problems that require criminal investigations in the first place. That would be a better outcome than banning exchanges altogether.

Finally, although the Trump administration’s frustration with the WTO and other international institutions is understandable, the Biden administration needs to work harder with allies and other like-minded countries to resolve differences, resuscitate the WTO, and have it and other organizations work to the advantage of the United States. Although China has made major headway in making these bodies safe spaces for authoritarian state-capitalist countries, the United States should in no way concede defeat on any of the big substantive issues (e.g., the core importance of market economies and constraints on government interventionism, the multi-stakeholder model for internet governance, and 5G) and operational norms (e.g., transparency, accountability, and staying within defined mandates). An invocation from several years ago in defense of TPP still applies: “If we don’t make the rules, China will.”

Conclusion

Although the Trump administration has tried to intentionally handcuff its successors, the Biden administration has substantial flexibility to reshape America’s China policy. Systematically working through this complex inheritance is the necessary first step to going beyond mere tinkering and reactive management. The incoming administration will be able to take some steps on its own, others primarily in consultation with allies, and still others as a process of negotiation with Beijing.

There is a large legacy of issues to resolve, but the administration should take its time to consider each individual policy, how they relate to each other, and how retaining, modifying, or jettisoning these measures would dovetail with their own novel initiatives and the broader transition to a distinctive Biden administration approach to China and the world more generally. Hence, the new team would be wise to follow the advice of legendary UCLA basketball coach John Wooden: “Be quick, but don’t hurry.”

The above writer, Scott Kennedy, is senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington, DC.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).



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