US-China relations: why Joe Biden should go back to basics
- Both sides should focus on the economic and trade issues that have long anchored the US-China relationship and work towards a bilateral investment treaty
- That doesn’t mean dismissing other tough issues, such as human rights, but re-establishing common ground and mutual trust before expanding the agenda
A better way would be for both sides to go back to basics – the economic and trade issues that have long anchored the US-China relationship. That doesn’t mean dismissing other tough issues. It means re-establishing common ground and mutual trust before expanding the agenda.
The unrelenting focus on China over the past four years as the source of much that ails the US now has a firm grip on popular sentiment.
Just as the US trade deficit was not made in Japan 30 years ago, it is not made in China today. Unsurprisingly, in both instances, the largest share of the US trade deficit could be traced to America’s largest trading partner – Japan then, China now.
According to the latest available data, it averaged minus 0.8 per cent of national income in the second and third quarters of 2020. And in light of outsize federal budget deficits, there is a good chance that national saving will plunge further.
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In exchange for foreign capital, Americans buy goods from overseas. Balance-of-payments deficits, not the so-called China problem, are the macroeconomic source of America’s overall trade deficit.
Moreover, that trade diversion has gone to higher-cost foreign producers, the functional equivalent of a tax hike on American companies and consumers.
None of this is to say that the Biden administration should wave the white flag and surrender to China. But it needs to shift its focus and abandon the unworkable bilateral framework of the phase one deal and the tariffs that support it.
A bilateral investment treaty is the best way to accomplish that, as well as to scrutinise the veracity of structural grievances. Actively negotiated for a decade prior to 2017, a US-China bilateral investment treaty would provide a framework to resolve structural tensions while encouraging growth in both economies through expanded market access.
But it is time for a more clear-eyed approach – especially by a new US administration that is off to such a strong start in so many important areas.
China is a challenge for the US – but also an opportunity. Unfortunately, Biden has been boxed in by his predecessor. It will take political courage, wisdom and creativity to break with the failed approach of the past four years. The US-China relationship is far too important to do anything less.
Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China. Copyright: Project Syndicate