The new normal

T­he first senior-level meeting between the US and China for more than six months in March turned into more of a dogfight than a diplomatic triumph, with the two sides taking pot shots at one another in Anchorage in front of a flabbergasted media.

So perhaps it was significant that China’s commerce ministry was talking up the resumption of “normal discussions” between the two governments last week, following phone calls between Chinese Vice-Premier Liu He and two senior figures in the Biden administration – the US Trade Representative Katherine Tai and US Treasury Secretary Janet Yellen.

Taoran Notes – a social media account that’s said to have an insider view of the Chinese government’s stance on the long-running trade dispute between the two nations – celebrated what it saw as a change in mood.

“China and the United States quarrelled and fought fiercely for a while. But after trying all the ways of getting along except cooperation, China and the United States finally chose the path of cooperation that seeks common ground while reserving difference,” it claimed.

Yet there is also a sense that Beijing is trying to create the impression of a breakthrough in the trade row, despite little indication that Biden is looking to replace the initial Trump agreement, which was signed in January 2020. Tariffs averaging about 19% are still being applied to about two-thirds of Chinese exported goods.

Tai, the US Trade Representative, did little to dispel that impression with comments to reporters last Saturday that trade with China still has a “significant imbalance” and she has spoken about the need for continuity in US-China trade policy, including the implementation of the previously agreed two-year deal (in which the Chinese committed to buy more American goods).

Beijing will point to the fact that the US is on course to ship a record $37.2 billion of farm goods to China this year (23% of its total agricultural exports). But Chinese hopes that Washington might abandon the raft of tariffs should also have been tempered by Biden’s signing of a new executive order last Thursday blocking Americans from investing in a large group of firms alleged to have ties to the Chinese military and intelligence sectors. Biden officials have increased the number of companies affected by the investment ban from 48 to 59 and tightened up the “flawed and legally vulnerable” drafting of the prior Trump order. They also warn that more Chinese firms are likely to be added to the ban, which takes effect from the beginning of August.

“In short, the new order is more operable but more vicious in nature,” an editorial in the Global Times lamented. “It seems the Biden administration lacks the courage and ability to shake off the shackles of populism toward China, nor does it have the will.”

Biden’s team has been busier in bolstering ties with older allies, including efforts to forge more of a common front in responding to China, after a splintering of that approach during four years of Trump. And as he set off for a tour of Europe this week, he was talking again about “realising America’s renewed commitment to our allies and partners” and “demonstrating the capacity of democracies to both meet the challenges and deter the threats of this new age”. It goes unsaid that his administration sees China as one of the key threats.

Efforts like these may have left the Chinese leadership feeling a little exposed, with reports in the domestic media that President Xi Jinping called for new efforts last week to bolster his country’s image overseas. “We must pay attention to a good grasp of the tone, as well as be open, confident and humble, try our utmost to portray an image of a reliable, lovely, respectable China,” Xi was quoted as telling his Politburo colleagues (for more, see this week’s “Media”).

The language in the English translations of these comments seems all the more antiquated after months of ‘wolf warrior’ diplomacy (aggressive responses to perceived criticism voiced by Chinese officials overseas; see WiC521 for an example). The waspish tone has done little to improve Chinese influence.

There have also been setbacks in some of China’s efforts to set the tone in its trade and investment relationships. Restrictions on Australian exports haven’t had quite the punitive impact that was planned (see WiC542), for instance, while Beijing’s chances of completing a much-feted investment treaty (see WiC523) with the European Union have receded after intensifying opposition to the deal in the European Parliament.

What’s clearer is that Trump’s departure from the White House has changed the context of Sino-US relations, making it harder for Beijing to position itself as a protector of international norms in areas like trade, investment and climate policy.

Yet the irony is that while Biden has worked hard to change the presentational tone of American policy, he seems to have accepted much of the underlying logic of Trump’s more hard line position that China is a strategic competitor.

Of course, the danger is that competition spills over into confrontation, given the number of the flashpoints in the relationship.

One point of contention – the origins of the Covid-19 pandemic – will come to the boil again soon, after Biden instructed his intelligence agencies to report back by September on its likely causes. Their findings will include an assessment of whether the virus could have leaked from a laboratory in Wuhan, a thesis that has been back in the headlines after losing favour last year.

Another even more incendiary issue as far as the Chinese are concerned is the changes in Washington’s relationship with Taiwan. Commentators have watched closely for signals that Biden will return to the ‘One China’ consensus, a policy which was directly challenged by the Trump administration (WiC520). But as yet, there has been no explicit endorsement of the ‘consensus’ – viewed by Beijing as a ‘non-negotiable’ – allowing speculation that Biden isn’t persuaded of a full return to pre-Trump norms.

That was seen again on Sunday when three American senators turned up in Taipei on a three-hour visit to publicise the donation of 750,000 Covid-19 vaccines to the island. What was getting most comment was that they arrived in a military aircraft in what was significantly the first landing in Taiwan by the US Air Force since 1999.

With cross-Strait politics in febrile mood, supporters of the island’s independence from mainland China seized on the news as another marker that the Biden administration won’t be rushed into restoring the “One China’ status quo. China’s defence ministry also saw deeper meaning in the landing, accusing the senators of engaging in a “political show” and “trying to achieve the so-called goal of ‘using Taiwan to control China’, This was an extremely vile political provocation”. It went on to demand that all official exchanges and military relations between the US and Taiwan cease immediately.

The question is whether high-stakes issues like these can be handled separately from dialogue on trade and investment, an argument that Chinese negotiators seem to be making more than their counterparts in the United States.

On Tuesday this week there was news that the two-track approach will soon come under a much wider test too, after the US Senate voted in favour of new legislation designed to bolster US supply chains. Much of the Innovation and Competition Act reads like a direct response to the intensifying rivalry with China. Billions of dollars will be dedicated to reducing American reliance on Chinese semiconductor supply chains; a flood of new subsidies will be available to firms in 10 focus areas including artificial intelligence, robotics and biotechnology; and Chinese state firms will be named and shamed as part of efforts to counter IP theft and technology transfer.

The Chinese feature in a range of other provisions as well: from efforts to root out Chinese influence on US campuses through to contentious clauses that classify Beijing’s policies in Xinjiang as genocide and require that US officials are forbidden from attending next year’s Winter Olympics in Beijing over human rights concerns.

“Let the record show that, at this moment, we stood united in our fight against the Chinese Communist Party,” tweeted Todd Young, a co-author of the bill, soon after it was passed this week.

The bill’s progress through the Senate – on a 68-32 vote – was a rare case in Washington of bipartisan solidarity, although it now needs approval in the House of Representatives, which has its own legislative effort in progress on a similar range of issues. It also calls on the government to do more to coordinate with allies to counter China, with provisions to increase American support for Taiwan and pro-democracy activists in Hong Kong.

Separately the Financial Times reported on Wednesday that the Biden administration’s next move could be to impose tariffs on imports of Chinese rare earth magnets – a vital component in everything from smartphones to missiles. The goal would be to end dependency on China for these magnets and build a domestic rare earth industry.

---

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.