‘A sea change’: Biden reverses decades of Chinese trade policy

“I’m concerned about what the House might do” about evaluating Chinese investments, Sen. Bob Casey (D-Penn.), a sponsor of the outgoing Senate investment bill, said on Capitol Hill in November.

Free traders have the opposite concern. As the Biden administration and Congress try to reduce exposure to the Chinese economy, lawmakers like Murphy warn that big US corporations could be at a disadvantage to companies from allied countries, especially if they don’t follow Washington’s lead.

“If an American company is not making as much profit as its competitors, it will be very difficult for it… to invest more and innovate more than the Chinese,” he said, adding that the government’s push to subsidize chipmakers and other critical enterprises have dangers of their own.

“Industrial policy, as we saw most recently with the CHIPS bill… depends on the government to pick winners and losers, and it only takes one Solyndra to cause a real problem with our industrial policy,” he said, referring to the Failed solar company that plagued the Obama administration’s clean energy efforts. “So it’s a dangerous time and a dangerous strategy that requires everything to go right.”

The riddle of decoupling

Murphy’s concerns point to a deeper question facing Biden and Congress in the new year: how far to drive an economic wedge between the two economies.

While everyone agrees that the administration has stepped up US action against China’s tech sector, there are those who want the measures to go further, criticizing the administration for not raising the stakes yet.

By issuing the chip rules, the Commerce Department allowed some chip companies in allied countries to bail out. Even though they use software from US companies, making them subject to US export controls, the administration decided not to force companies from the Netherlands and Japan to stop shipping chipmaking equipment to China.

The concern, the administration said at the time, was that if Biden included Dutch and Japanese companies in the tech blockade, they would simply program American software and continue to sell chip-making machines to China while depriving American companies of their business.

“Obviously, we have no interest in controlling technology made by American companies that could be immediately replaced by foreign competitors,” a senior administration official told reporters when the chip rules were issued, “which would simply result in a loss market share by US companies. and then PRC obtaining the same capacities”.

Instead, the Biden administration said it hopes allies will do the same on their own, voluntarily issuing similar export controls that would prevent their companies from enabling China’s chip-making sector. A deal to do so was close, BIS head Alan Estevez said at an industry event in late October, and it should be ready by the end of the year.

But the road to that deal has been rocky, with the Dutch and Japanese making it clear that they are not likely to simply follow Washington’s lead on export controls. Adding to the tension: the EU’s growing anger at industrial policies in the Inflation Cut Act, which benefits American electric vehicle companies over European carmakers.

That led some China hawks to say the administration was wrong to not include Dutch and Japanese companies in the first place.

“We really brought a knife to a shootout” with the new BIS export controls, said Nikakhtar, who pushed for a more aggressive approach toward China during his time at Commerce. “Why the pressure? [the foreign governments] when can you make it illegal?

Even if the Biden administration can reach a chip control deal with its allies, similar issues are likely to arise as the US government moves beyond the semiconductor sectors and seeks to halt or outpace development. of China in other critical sectors such as biotechnology and clean energy. In each case, EU members will have to choose whether to continue to allow their companies to sell sensitive technology to the Chinese or agree to follow the US blockades.

“At some point, we have to tell the Europeans that they are on our side or on the other side,” said Lighthizer, who often ruffled feathers in Brussels during Trump’s tenure. “Europe wants to be somewhere between the two of us and therefore they will resist if they can make money.”

The Europeans say Biden’s focus on rebuilding American manufacturing, sometimes at Europe’s expense, is making cooperation even more difficult. EU members are furious that Biden’s Inflation Reduction Act cuts domestic automakers out of hundreds of billions of dollars in subsidies for electric vehicles by stipulating that final assembly must take place in North America. After Biden’s promises of a reconciliation with allies after Trump, Brussels feels betrayed by the action.

The new subsidies, combined with unilateral US actions on Chinese technology, “make Europe look to the US.

At the center of the disagreement is a conundrum: how far to take economic disengagement from China. Some, like Lighthizer, say the US should look beyond limiting China’s development in a handful of sectors and try to reduce the overall trade deficit with the world’s second-largest economy.

“Smart kids tend to get caught up in technology, because it’s very technical, very futuristic and all that, but [trade in goods like] the t-shirts are bad too,” Lighthizer said. The trade deficit, he has long argued, “also develops his technology, develops his military and his spy network.”

“In other words, we are funding all these horrible things,” he said.

That push for broader decoupling could gain traction with China’s Republican hawks in the next Congress as they look for ways to paint the president as soft on Beijing. But for now, the White House team and its recent veterans are pushing back against that rhetoric, saying they will try to balance the new technology conflict with China while retaining trade ties.

“The overall message we’re trying to get across is that I think the ‘decoupling’ conversation is a bit 2019,” Tobin said. “We need to talk about selective unraveling and be more nuanced, go issue by issue, find common sense steps to protect our interests while allowing for the idea that economic and trade cooperation can bring benefits.”

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