Welcome to the 236th edition of Trade War.
After the Biden and Xi meeting in Peru at APEC, what’s next for US-China relations. Xi tells Washington to “make the right choice,” while Biden says “conversations prevent miscalculations.” And Xi speech to business executives positions China as leader in globalization and champion of the Global South, in unspoken contrast to Trump’s tariffs and protectionism.
American business worries about becoming collateral damage as bilateral relations dip further under the next administration. It’s the end of an era as foreign companies struggle in a once promising market. And China is winning the battle for economic influence in Latin America.
Notable/In depth ~
Goldman’s chosen China banker “tried to screw us in the end”
‘Family warehouses’ for Temu and TikTok Shop purchases sprout up in US cities
“I’m not bellicose. My views are designed to prevent war, not to invite miscalculation,” says Matt Pottinger, former deputy national security advisor
What comes next for US-China relations?
As U.S. President Joe Biden and China’s chief Xi Jinping met Saturday, perhaps for the last time, on the sidelines of the Asia-Pacific Economic Cooperation Forum (APEC) in Lima, Peru, the world faces a consequential question: will relations between the two global powers continue their downward slide under a new president or will they find a floor?
Unfortunately, the answer for now seems clear: things will only get worse.
Beijing had thought relations might improve when Biden took office four years ago, expecting his administration to lift Donald Trump’s tariffs, but was badly disappointed. Instead, the Biden administration kept them in place while launching a concerted effort to block China’s ability to produce advanced semiconductors, later expanding it to artificial intelligence, quantum computing and electric vehicles and batteries, all key to China’s industrial strategy. Biden has also presided over an ever larger “entity list” restricting Chinese companies access to the U.S. market and technology.
During the last four years the relationship has only worsened and is likely to slide even more precipitously under Trump as the next president, sending trade relations into a tailspin with the imposition of even higher tariffs.
The Trump China team that is starting to take shape looks very bad for Beijing. Marco Rubio as Secretary of State would very likely mean a more hardline approach to China, with a new focus on human rights, with Rubio previously sponsoring legislation to punish companies sourcing products from Xinjiang. China is very aware of Rubio’s tough stance on China, and has put him on a list of American officials banned from entering the country. Mike Waltz who could become National Security Advisor is also a hawk on China, as shown by his 2021 comment that the two countries are in a “Cold War.” And Waltz has also been critical of China’s human rights abuses in Xinjiang.
~~Rubio would be “a nightmare come true” for China, says Zhu Junwei, director of American research at Grandview Institution in Beijing. “China has to consider what to do with the sanctions before being able to have any engagement with him.”
The hardline drift could be countered to some degree by the presence of Elon Musk, who has deep business interests in China that he would want to protect from a further deterioration in bilateral relations. And the transactional nature of Trump and his eagerness to show his business prowess through trade deals —plus his clear admiration for authoritarian leaders—are wild cards which could see the next U.S. president override the hawks in favor a friendlier approach.
China is very likely to retaliate against future Trump tariffs with a rapidly expanding toolkit of punitive measures. Those include building alliances through trade and investment with other nations particularly in the Global South. Xi is doing that right now in Latin America, including through the Saturday inauguration of the $1.3 billion Chancay Port in Peru and next week’s visit to the Group of 20 summit in Rio de Janeiro, Brazil, a country which has become an important market for Chinese electric vehicles and a provider of soybeans to China.
Other measure include selling U.S. Treasuries, devaluing the yuan, restricting exports of critical minerals like gallium and germanium, that are key inputs in the production of semiconductors and electric vehicles, and a very likely target, putting tariffs on U.S. agricultural products. Beijing has already been preparing for a future trade war and has been diversifying its purchases away from the U.S., including by buying soybeans and corn from Brazil.
Beijing will find ways to punish the many U.S. companies that still rely on China as a market and manufacturing base. We have seen business conditions for American and other international firms worsen in recent years, with consulting and market intelligence firms like Bain and Mintz facing raids and the detention of their Chinese employees, and the recent arrest of an executive at Swedish-Anglo drug firm AstraZeneca. Beijing has also used its sway over social media to turn potential Chinese consumers against foreign brands it perceives as acting against the interests of the Chinese Communist Party. That trend is likely to continue.
China has developed a counter arsenal of laws to punish foreign investors including its own “unreliable entity list.” Similarly, China has passed an “anti-foreign sanctions law” that can be used to punish companies for following foreign laws that sanction the country, for example for its human rights abuses in Xinjiang. PVH, parent company of Calvin Klein, is now being investigated for “discriminating” against Xinjiang cotton companies.
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