The US is ignoring the rain of shrapnel that falls onto allies including Australia from its trade clashes with China.
The spectre of Donald Trump stalks Joe Biden’s White House and other corridors of power in Washington.
A recent Iowa poll showed that Trump would win the state comfortably if a poll were held now, despite a disapproval rating of 99 per cent among Democrats. Trump’s popularity there is higher now than when he was president.
The Trumpian legacy animating Biden’s trade policy was also on full display in a recent headline speech by US Trade Representative Katherine Tai. On October 4, Tai presented the findings of the administration’s comprehensive review of the US-China trade relationship.
Its essence was continuity with the first two phases of Trump’s deal. Where Biden during the campaign attacked Trump’s tariffs on China as “disastrous”, he now commits to them.
Tai’s opening salvo could have been uttered at a Trump rally: “China’s lack of adherence to global trading norms has undercut the prosperity of Americans and others around the world”. Her conclusion was stark: Washington will take “all steps necessary to protect ourselves against the waves of damage inflicted over the years through unfair competition”.
The speech wrote another chapter in the recent American lament about the direction China was expected to take and a belated recognition of the one it now follows. China’s entry into the World Trade Organization (WTO) in 2001, Tai noted, did not lead to the “other market-oriented changes” expected. Instead, China’s “follow through was inconsistent and became impossible to enforce”. But that hardly squares with the evidence: of the 23 cases on which the US has taken China to the WTO, 22 have so far been resolved in Washington’s favour.
The Biden administration is now staffed by trade and security hawks claiming a new departure on US China policy: away from the hopes of the past — namely that China would liberalise politically as it did so economically — and towards a new realism on Xi Jinping’s China.
Letting go of that myth, at the policy level at least, began in a 2018 article in Foreign Affairs by two senior Democrat Asia policy hands, Ely Ratner — now at the Pentagon — and Kurt Campbell, Biden’s Indo-Pacific “tsar”. Their framing of a “China reckoning” mocked the previous conceit that US power and hegemony could “readily mould China to the United States”. They reckoned too many of their policy predecessors had been duped by the dream of turning China democratic.
Tai’s history was in that vein. It chronicled the attempts of previous administrations, particularly since China’s WTO entry, to “push China towards complying with and internalising WTO rules and norms”. That happened: China’s political democratisation did not.
Harvard’s William Overholt counters that the “Campbell/Ratner fallacy has founded China policy on a false premise”, creating a “gratuitous generational polarisation in an already fragmented policy community” and contributing to “an increasingly simplistic view of China and China policy”.
In a caustic assessment of Tai’s remarks, The Washington Post‘s Fareed Zakaria observed that the US was “now retreating to a cold, curdled view of international life, one that is dark and zero-sum, in which we search for villains to blame for our problems”.
Zakaria has a point. It is America’s domestic failure to spread gains from its trade with China that lies at the heart of Washington’s ongoing political problems on trade. Trump’s tariff regime jacked up the cost of living for the American middle class and led to the loss of nearly 250,000 jobs. An x-ray of American economic travails would reveal a slow but steady ossification via decades-long wage stagnation, crumbling infrastructure and the collapse of its manufacturing sector. Biden’s “Build Back Better” bills before Congress are an attempt to stop the rot, but the temptation to blame others, and especially Beijing, has proven as irresistible to Democrats as it has to Republicans.
Where American allies sit in all this is another question entirely.
After her speech, Tai fielded questions. In an exchange with the Rhodium Group’s Daniel Rosen, a former adviser to former president Bill Clinton, Tai left Australia and other US allies languishing without support on the field. Rosen’s question, surprisingly unreported in the Australian press, was the one on many a trade analyst’s lips in Canberra and other Asian capitals.
It started with a bald fact, that under the first phase of the Trump administration’s deal, 100 per cent of China’s purchase commitments could be fulfilled by trade diversion from US allies. So on barley, for example, Beijing simply shifted its contracts from the Australian to the American ledger.
Rosen asked how “an inherently bilateral agreement that has no regard for the multilateral consequences of how those Chinese commitments are fulfilled” squared with Tai’s emphasis on the wellbeing of allies and other market economies.
Tai recognised the question but left it unanswered. This was about “stabilising rising tensions” in the US-China relationship, she said, so that it could be “realigned”. There was no concern about how the shrapnel of the deal rained down on allied budget bottom lines or on the whole trade system.
And for all the expression of seeming confluence in US trade and security objectives, Biden continues to turn down the idea of American entry to the Trans-Pacific Partnership trade group, at the very moment China seeks to join. This is the equivalent of the US shooting off one of its geopolitical feet.
Washington might have Canberra somewhat miffed. Biden binds Australia closer than ever militarily yet totally abandons it and other allies economically. But it would be sheer folly for Australia not to grasp, and think through, how the roots of both its economic prosperity and national security lie in a continuation of the open, multilateral trading regime that has been the very staple of the post-war international order.
This article was first published by The Australian Financial Review and is reproduced with permission.