The pandemic, infrastructure and climate change policies will likely take precedence over trade in the Biden administration’s near-term agenda, but the new president’s trade positions will also be a key area of focus as the United States works toward economic recovery. China’s importance in global trade continues to grow. While the intention behind the U.S.-imposed tariffs on the country was rightfully directed at leveling the playing field and attempting to limit China’s dominance, those tariffs did not achieve the mark. This is because so many countries have become dependent on China that global economies do not have the option of ignoring it.
The U.S. trade deficit with China has been increasing; we import far more goods from China ($452 billion in 2019) than we export there ($123 billion that same year). China’s exports to the rest of the world – the Eurozone, Asia and Africa – have also been consistently increasing. By bolstering the U.S. dollar through U.S. Treasury investments, China has been able to make it cheaper for the United States and other countries to import products made in China.
As the United States explores the best approach to trade and a rising China, some other developed countries have become more entrenched in their relationships with China. The European Union recently signed an investment agreement with China recognizing the need to facilitate bilateral investments. China pushed past the United States to become the EU’s top trading partner in 2020. China is Germany’s top supplier and trade partner in the automotive and industrial sectors, and Australia’s largest trading partner overall. Within Asia, China recently entered into the Regional Comprehensive Economic Partnership agreement with 14 other Asia-Pacific countries to more easily facilitate trade among those member countries.
The pandemic highlighted what we have known for many years; that critical manufacturing supply chains are too dependent on China. In just the industrial space, China is a dominant supplier of steel, machinery, batteries, rare earth minerals, auto parts, and various other raw materials and components that manufacturers rely on. As the global auto sector moves toward electric vehicles, China has built an enviable position in the lithium-ion battery supply chain – the country controls “80% of the world’s raw material refining, 77% of the world’s cell capacity and 60% of the world’s component manufacturing,” according to data from BloombergNEF.
The United States and other governments continue to grapple with how to move critical supply chains out of China and reinvigorate manufacturing elsewhere. While trade policies with China may not be the immediate top priority for the Biden administration, the outcome of policies he puts in place will likely take years to fructify. In the meantime, manufacturers should heavily invest in innovations that give them a competitive edge. Product and process innovation, localized supplier development, technology-enabled efficiencies and worker skill training is what companies should focus on as they recover from the pandemic.
Global economies cannot function without China, even if many of us in the United States may not agree with its trade or human rights practices. China was the only major country to register growth in its gross domestic product in 2020. As the German head of the EU chamber of commerce in China, Joerg Wuttke, said in an article in the Economist this month: “We have to play ball with the Chinese…If you are not at the table, you are on the menu.”
