2020 began with hope of a fragile truce in the US-China trade war.
The Phase 1 trade deal between Washington and Beijing was signed in January. However, this talked only about product purchases; it did not cover the most contentious issues around security and intellectual property theft.
As a result, the deal effectively handed the responsibility for the bigger technological and digital conflict between the two countries to the US Department of Commerce.
The story of 2020 (at least in terms of trade, rather than the Covid-19 pandemic) has been one of increased restrictions on US tech businesses trading with Chinese companies, culminating in one of the final acts of the Trump regime: an executive order to ban investments by individuals to invest in securities of 31 Chinese companies with reported links to the Chinese military.
US-based Index and ETF providers such as the FTSE Russell, S&P and MSCI have all moved to de-list some or all of these entities since the announcement at the end of November.
That was 2020. But if we want to take guesses at how 2021 will play out, we need to look at the big picture.
Trade was always a misdirection — the issue between the two countries is not one of trade deficits and purchases of US agricultural goods. Rather, as has become apparent over the past few years, the focus on tariffs and deficits has become a proxy for a much broader existential conflict between the regimes in Washington and Beijing.
Of course, that was all under Donald Trump. Come 20 January, the US will have a new President. So what can we expect for 2021?
It is likely that Joe Biden will simply be too preoccupied with domestic concerns to escalate a trade war through nit-picking spats over the tariff regime between the two countries. However, we should not expect a substantial shift in the US position towards China.
Like his predecessor, Biden believes that China has over-extended its reach and presents a major threat to US economic hegemony. In his view, “national security is economic security”. In his desire to play to a domestic audience, Biden will not drop the focus on reshoring US jobs and prioritising “Made in America”.
The tone of Biden’s trade policy will no doubt be more emollient, especially towards countries other than China. Reinvigorating US relationships with its allies, especially the EU and Japan, will be priorities for the new White House.
The new administration will also look to reform the World Trade Organisation and make trade a “force for good”, according to Biden’s new choice for US trade representative, Katherine Tai. Likewise, tariffs will be used to encourage sustainability in supply chains rather than used as coercive tools of foreign policy.
This change in tone is welcome, and will do much to restore the world’s faith in multilateralism through trade, even if it is not the whole story. It is already clear that America’s ultimate goal is as much about isolating China strategically as it is about rebuilding relationships or leading much-needed reform to global institutions.
Trump’s Trade War was always a phoney war, but its real consequence was to put strategic competition in economic terms at the heart of foreign policy, as well as industrial policy everywhere.
2021 will not see a continuation of the belligerent rhetoric associated with trade wars that we have seen during the Trump era. But don’t be fooled: this does not suggest a softening of the US stance towards China — just that trade will no longer be the obvious means of starting a fight.
Main image credit: Getty