Commentary on Political Economy

Thursday 27 April 2023

Biden’s economic diplomacy push with China is high-risk, low reward

As he kicks off his reelection campaign, President Biden is doubling down on his push for economic engagement with Beijing. Seeking such dialogue makes political sense, but it risks lifting U.S. pressure on China without achieving real gains in return.
Biden begins his run for president in a chaotic political environment. The Ukraine war slogs on, U.S. economic recovery is sitting on a knife’s edge and Americans are hurting from inflation. Regarding China, there is tension between Biden’s interest in maintaining a tough stance and his desire to slow the rapid descent of the relationship. Meanwhile, China courts European allies in an attempt to isolate Washington.
Officials tell me that Biden seeks another meeting with China’s President Xi Jinping to follow up on their confab last November in Bali, Indonesia. But the strategic-engagement track has been frozen ever since Secretary of State Antony Blinken’s planned trip was scuttled by the spy balloon incident in February. At this point, Xi won’t even accept a phone call from the American president. But his government has told the Biden administration that it wants to resume economic discussions. This has provided an opening for Biden’s economic officials to step forward.

At an April 6 meeting of Biden’s top national security officials, known as the principals committee, several argued in favor of economic engagement with Beijing. The following week, two senior Commerce Department officials visited Beijing and Shanghai, in part to feel out a possible trip by Commerce Secretary Gina Raimondo this year.
Then last week, in a speech on China at Johns Hopkins University School of Advanced International Studies in Washington, Treasury Secretary Janet L. Yellen reiterated her desire to travel to Beijing “at the appropriate time.” She hopes to establish substantive dialogue to “lay the groundwork for responsibly managing our bilateral relationship,” she said.
But it would be a huge concession to the Chinese government — and would represent a de facto shift in U.S. strategy — if either Yellen or Raimondo were to go to Beijing before Blinken reschedules his trip. Yellen’s speech, while affirming national security concerns, contained a clear message for Xi: engage on economics and relations can improve.
“Negotiating the contours of engagement between great powers is difficult,” she said. “And the United States will never compromise on our security or principles. But we can find a way forward if China is also willing to play its part.”
Spokespeople from the White House, Treasury and Commerce departments told me that economic engagement with Beijing has always been a goal; there’s been no shift in strategy. But several other officials told me that public declarations of unity mask a growing tension inside the administration about the policy direction.
Chinese leaders clearly believe that dealing with Yellen rather than Blinken is better for them. Yellen has repeatedly argued for lowering tariffs on China. Treasury officials reportedly persuaded the White House to narrow restrictions on outbound investment to China. A long-delayed executive order to make this happen will probably not cover large areas of American economic vulnerability, including clean-energy technology and biotechnology.
Many national security officials see weaknesses in Biden’s strategy to apply economic pressure on China. For example, an earlier plan to investigate China’s abuse of government subsidies has been dropped. And six months after the administration announced new technology export restrictions on China, final rules to carry out those limits have yet to be released. If the administration has any serious plan to address China’s abuse of U.S. capital markets, it’s a closely held secret.
Raimondo, for her part, has taken a relatively tough stance on China. She has, for instance, championed legislation to reinvigorate American semiconductor manufacturing. But she also has political ambitions, and a trip to Beijing would bolster her foreign policy bona fides.
To be sure, raising economic pressure on China in the current environment would carry its own risks. In fact, some observers praise Biden’s “course correction,” while others point out that outreach is unlikely to produce results because the administration is not prepared to concede to Beijing’s demands to back off on tariffs, technology restrictions and bans on products made with forced labor.
Officials emphasize that the purpose of a Yellen or Raimondo trip would be to discuss macroeconomic issues rather than to negotiate any specific agreement. Expectations for substantive progress would be low. But if so, why go at all?
Beijing’s pattern has long been to lure American administrations into economic dialogues that go nowhere, but that end up delaying U.S. action to hold China accountable for its unfair trade practices. There’s no reason to fall for this ploy yet again.
Yes, the United States should seek engagement and competition with China simultaneously. But Beijing is trying to force Biden to prioritize the former over the latter. The problem with going along is that until the United States addresses China’s economic aggression, it can expect neither fair competition nor security. 

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