The Biden-Trump China Toughfest

As the US presidential election nears, profound foreign policy questions hang in the air. The debate for the cameras has been about who is tougher on China. That is political theater, not the question that matters. Leadership means not toughness for its own sake, but good policy effectively communicated so smart citizens, businesses and friends abroad can rally around liberalism rather than settle for an authoritarian second best. The Biden campaign has begun unveiling elements of its China plans. They include good ideas that would improve upon the blustery and increasingly dangerous Trump-era China record. But there are also signs of the America-first instincts that are so much in fashion today but which have undermined prospects for a coalition with like-minded nations. To manage China’s rise the US needs a balanced strategy that reinvests at home without squandering alliances.

Strategy Sets the Bar

For fifty years the United States and China maintained a productive relationship because each had objectives—some shared, some not—that were advanced by fostering ties. That is how the US won the Cold War and how China climbed out of half a century of economic decline. In a sense, both of those struggles were – ironically – against communism. The strategy that came to be known as engagement was not predicated on being equal or symmetric. It was contingent on both sides benefiting from partnership and, on the US side, evidence that China was and would continue to adjust its systems to become more compatible with advanced economy norms over time.

Some now deride that expectation as naïve, but it is easy to forget how much China has changed. In 1978 all of China’s prices were fixed by the state; today, nearly all are market-determined. Beijing elected to converge with liberal approaches to setting prices because it produced better outcomes for China. Convergence happened across the economy: tariffs fell, investment barriers were eliminated, financial services diversified, and private property was made lawful. There were myriad other transitions.

Engagement served advanced economies well in the economic aggregate too, though many (foremost the United States) did a poor job of fixing the uneven distribution of benefits at home, often due to self-defeating domestic political squabbling. But it also became clear that China’s convergence with liberal rules decelerated in the wake of the global financial crisis, and then ground to a halt. Reform required increasing tolerance for economic volatility and political pluralism. Elements of statism that had been on the way out, like Communist Party Committee authority over boards of directors at companies, both public and private, are back in style.

Beijing argues that it is as committed to reform and opening as ever. The evidence of the past half-decade suggests otherwise. It is no surprise then that American politicians on both sides of the aisle now reject engagement as we knew it. Agreed: there is plenty to engage on, but engagement as grand strategy is not fit for current realities.

The test for Trump or for Biden is whether they have a strategy that responds to this new landscape, and sound policies to put it to work. Three questions are relevant here:

• Is there a clear diagnosis of the strategic problem China presents?
• Is there a clear vision of new end goals if convergence is off the table?
• Is there a solid policy plan to achieve those goals?

We can score the two candidates against this checklist. For now, the two are competing on the wrong measure: how tough they appear. What America and its like-minded partners need is a well-articulated strategy that speaks to the future of liberal democracy in the face of illiberal authoritarianism.  Toughness is not a strategy. Biden must avoid falling into that trap.

The Trump China Policy Baseline

First, a word of praise for things that happened on China while Donald Trump has been in the White House. The national security officials in charge of US foreign policy recognized that the long-standing engagement strategy was losing effectiveness. An important few argued that it had never been a good idea, and that China had not intended to adjust in our direction. But most did not view it that way and accepted that China didn’t grow from the development level of Burkina Faso in 1978 to become the world’s second-largest economy by sleight of hand. It did so by adjusting to market norms and opening widely.

Regardless of that difference of opinion, it was evident that by the 2010s China’s ability to marketize without political liberalization was stalling. In a richer economy that runs on productivity rather than state planning, businesses need protection from unlimited authoritarian power. Xi Jinping started his leadership tenure in 2012 with plans to reduce the role of the state in China’s economy, but by 2016 those plans were being shelved because they were too hard to implement. That change of heart—from gradual convergence with market norms back to insular self-reliance and government economic control—is what forced a broad US rethink.

Rather than fudge the meaning of the word engagement, US national security officials made a break with it. In December 2017 a new National Security Strategy dropped engagement as a grand design. This meant no longer expecting that permissive interaction would incentivize China to liberalize. The US would compete, interact, collaborate, and engage where it served the national interest, but not by default.

This preference for US strategy was nothing new for the Defense Department, which had advocated it for years. What was new was the reduced willingness of the economic bureaucracy, commercial interests, and the research and academic communities to push back against its implementation (owing to growing misgivings about China’s trajectory), combined with a White House that was unconcerned about due process. In the struggle over the right balance between security and economics Trump played an inconsistent role—sometimes supporting more hawkish policies (such as tariffs on imports), and sometimes resisting them (as when opposing a ban on high-tech aircraft engine exports). His Twitter-fueled love-hate relationship with Xi Jinping was inconsistent.

Outside the American defense establishment, many observers accepted the necessity of some course correction, though certainly not in the manner that was taken. It was disconcerting to see the polestar of engagement go dark with no clear alternative to replace it.

While there was strategic design to the national security community’s Trump-era program, it was rife with muddled thinking and plagued by an Oval Office unwilling to build an implementation consensus at home or with allies. Contradictory policies and messages were constant, statements about China’s actions were often divorced from fact or science, argument was comingled with rumor and fear-mongering, American capabilities were mis-measured, and the costs of all these China policy ideas were left for others to calculate.

Most of the national security staff serving in the Trump administration was eager to work in partnership with allies on China because they recognized that the US could not go it alone. (Even Steve Bannon thought Trump should have stayed in the Trans-Pacific Partnership, though only after he managed the pull-out). These professionals would have balanced the inward-looking unilateralism that saw the White House turn away almost every foreign offer to work together on China. They understood that an effective strategy to respond to Beijing’s authoritarian drift required a coalition, not tariffs followed by endless (and possibly fruitless) trade talks.

If exports were to reach targets (they will not) the administration would argue that its trade policy had paid off. But managed trade targets for 2 years do not amount to policy, and the price of this dubious aspiration for the bilateral trade balance was strategic incoherence on a grand scale. Hopefully Joe Biden’s foreign policy team is taking careful note, and will avoid the same mistake. This is fixable, but not by fudging: bilateral trade deficit reduction is not worth the abdication of America’s global strategic role and responsibility.

Enter Biden 2020

Biden’s China team includes seasoned veterans of prior administrations, plugged-in business professionals, and some of the most insightful academics and think tank analysts studying China today. Most have decades of experience dealing with China and the American interest. Working with the former vice president, this team has developed important elements of a China policy, and the hint of a strategy.

Biden gets a lot of the balance right between an outward-oriented, globally engageable policy and a necessary focus on shoring-up affairs at home. He has vowed to undo the suspension of H1-B work visas that has prevented high-skilled talent from working in the United States. He has condemned the overly expansive “trade war” with China in its current, untargeted form. He notes that the “phase one” agreement is falling short of its managed trade promises and that it “won’t actually resolve the real issues at the heart of the dispute, including industrial subsidies, support for state-owned enterprises, cybertheft, and other predatory practices in trade and technology.” Importantly, Biden has a track record of engagement with allies and would tone down disputes in favor of building a more united front.

But there are also examples of the economic thinking that impeded outward-oriented coalition-building the past four years. (See Table 1.) His “Made in America” plan, just as it sounds, celebrates populism over pragmatism. He threatens to claw back public investment dollars from firms that put factories abroad, without regard for whether those operations exist to sell to foreign consumers. He emphasizes steps to de-marketize trade flows by insisting that US trade products are only carried on US-flag ships—additional protection for a US shipping industry that already enjoys a monopoly on inter-coastal shipping.

Biden’s party platform states that he will not negotiate any trade deals “before first investing in American competitiveness at home.” Certainly better investment at home is needed, but these statements will further irk allies who have waited for years to get down to business (often tolerating taunts from their US partner), even while Washington demands that they not deepen trade relations with a ready and willing China. The United States can and must deal with domestic issues and overdue foreign policy priorities at the same time. That’s what “superpowers” do; not as a form of charity, but to protect their assets and interests. America buys and sells products around the world, has buyers for its government debt all over the globe, has servicemen and women on every continent, and must deal globally with transnational threats like climate change and pandemics.  Taking a year off from dealing with the world is not an option.

Many of the policies proposed by the Biden team wade into state-heavy industrial policy waters that were long discredited, before they made a comeback under Trump. Biden has a $300 billion plan to increase federal R&D spending in key technologies and provide manufacturing tax credits. Bolstering the environment for innovation in America is essential, especially considering the accelerating impulse to innovate in China and elsewhere fueled by Washington’s threats to break supply chains and cut off access to high-tech inputs. But history shows how easy it is to get innovation policy wrong, particularly when you are already the most innovative nation in the world.  China’s high-tech industrial policies—which both Biden and Trump aim to counter—have been wildly expensive and produced mixed results. Before the industrial policy bandwagon careens out of Washington it is crucial that the next administration lay down rules and criteria for the areas that need public support and those that would be better off with pro-competitive protection from distortions, foreign or domestic. Biden should be crystal clear that China’s model is something to be avoided by market economies, not copied.

So how does Biden score on strategic readiness to handle the China portfolio? Team Biden has not yet offered a China strategy per se, but the candidate and his advisors have made some of the elements clear. They concur that China is no longer converging with liberal norms and that the shift away from engagement was apt. The Biden camp clearly agrees with the 2017 National Security Strategy’s other big shift too: the need to fuse economics into national security. Biden stated plainly that “economic security is national security” in Foreign Affairs earlier this year.

Most importantly, Biden gets closer to naming not just what our strategy isn’t but what it needs to be: leading a balancing coalition to counter destabilizing threats, with pragmatism not malice. That is distinct from engagement, distinct from Cold War style containment (which is not sensible for a rival that accounts for a greater share of global growth than the US, Europe and Japan combined), distinct from populist unilateralism and certainly distinct from the hubristic aspiration to foment regime change in a nation of 1.4 billion. Bully for balance.

A careful reading of the White House’s May 2020 strategy report makes clear that a balancing strategy is what many professionals in the Trump administration and Pentagon also thought the end state should be. However, gratuitous unilateralism from the top made that outcome impossible. Biden is clear in his support of working with allies and partners to define the norms of liberal market democracies collectively, so that the incompatibilities of China’s system are manifest.

Unsolicited Advice to Both Sides

It is said that frustration with China is the only bipartisan sentiment in the United States today. Washington needs to channel its energy less into tough talk and more into strategic action. The candidates and their teams can rally around a long list of lessons learned about China, all while avoiding strategic mistakes that will look just as dumb tomorrow as parading around without a mask. We offer six unsolicited recommendations for either side to consider:

1. To beat ‘em, don’t join ‘em: Both candidates propose policies that would look at home in China, for instance hundreds of billions of dollars for industrial policy. We know from experience (China’s and ours) that government aid can be counterproductive. Just because we now wish we had cultivated an indigenous 5G telecommunications industry doesn’t mean that interventions would have allowed us to do so. Washington must take a more active role in enabling innovation, but this must be targeted and well-considered.
2. Resume America’s role as global leader: Since 2016 Washington has undervalued America’s place in the world to an incomprehensible degree. The diminished role in international institutions, mistreatment of allies and partners, and lack of moral clarity must end.
3. Be partial: Talk of decoupling is cheap. Uprooting multibillion-dollar supply chains is not. The United States must be smart and selective about how it chooses to reduce exposure to China. That work will require good data and objective decision-making on the costs and benefits of decoupling.
4. Be peaceful: Both candidates are entertaining (and even espousing) highly aggressive thinking on how to deal with China. Building a coalition to deal with China means recognizing that allies want peaceful competition well below the threshold of armed conflict.
5. Be provisional: China turned away from convergence with liberal economies in recent years, but may well need to turn back again in pursuit of prosperity. America’s objective is resolution of tensions to our advantage, not a permanent, Orwellian state of conflict. That requires offramps to conflict, and policies that are provisional.
6. Build on foundations: US China policy over the past four years has been far from perfect, but many changes were sound and should be preserved. The electoral winner needs to maintain what is working, including economic-security fusion, not start from scratch.

The challenge is not to sound tougher than the next guy, but to strike the right balance between an inward-looking national competitiveness strategy and an outward-facing strategy that strengthens ties with allies through alignment. Every country has a mix of these two impulses — hunkering down at home and rallying friends abroad. After three and a half years, the inward-looking Trump direction is clear. With the first tranche of Biden campaign policy papers in hand, we can discern what direction an alternative Oval Office would take. A clear vision of the American interest is needed from both candidates.  Good news: there is ample time and opportunity for that. It needs to be done at some point soon anyway, and will help, not hurt, electoral odds, so no better time than the present.