America’s great power rivalry with China occurs not only in political and military fronts, but also in the economic front. The Trump administration leveraged tariffs and sanctions to initiate a trade war with China. The Biden administration inherited the policy and expanded the fronts to supply chains in high-tech products and critical materials. How have been these policies working? Do these policies achieve the original goals of containing China’s rise and securing America’s advantages? To answer these critical questions, RAND Corporation recently published a comprehensive report to evaluate the effectiveness of these policies from 2017 to 2024, while offer policy recommendations for the next administration.
In the beginning, the report had a historical review on U.S.-China economic relations since 1979. During the Clinton and Bush administration, the bilateral relations were featured with amicable policies that treated China as a benign trade partner and supported its accession into the WTO in 2001. However, as China’s power and influence grew with its economic might, Washington’s policy stance gradually shifted from cooperative partnership to competitive adversariness. Furthermore, China’s insubordinate behaviors coupled with economic surge have posed a serious threat not only to U.S. and its allies, but also the post-war international order that the U.S. has established and strived hard to maintain.
The report clarifies two major goals of U.S. economic policies towards China. The first goal is to promote free trade. Achieving this goal demands relevant tools of tariffs and subsidies in order to frame international trade norms, strengthen American manufacturing sectors, ensure fair treatment of American companies, and forestall China’s unfair trade practices. The second goal is to defend America’s economic interests. Achieving this goal demands relevant tools of industrial policies, export licensing, and entity lists in order to raise America’s supply chain resilience and to prevent the transfer of critical technologies to China.
As for the attainment of the first goal, the authors claim that U.S. policies have successfully lowered imports from China and consequently reduced America’s trade deficit with China. However, U.S. policies fail to change China’s behaviors with regard to its unfair trade practices as well as its unfair treatment of American companies. As for the attainment of the second goal, the authors claim that U.S. policies have successfully checked the outflow of critical technology, especially advanced semiconductors, from America to China. Regarding critical materials, U.S. policies have managed to reduce America’s dependence on China for the supply of polysilicon, lithium, and graphite, but not much progress has been made in the supply of rare earths due to the high costs of refinement.
On the other side, China has not sat idly to bear the consequences of America’s strategic actions. The most immediate and direct form of China’s response is the tit-for-tat strategy that covers retaliatory tariffs and trade restrictions. At the same time, China has kept the door open for bilateral trade negotiation and a “mutually beneficial” relationship with the U.S. From the long-term perspective, the trade war with the U.S. has further incentivized China to build up its technological self-reliance. Large quantity of resources have been devoted to the development of indigenous technologies and the accumulation of added value for indigenous products. Critical high-tech products such as semiconductors and their manufacturing equipment have been stockpiled to prepare for sudden supply disruptions. Moreover, China has made tremendous efforts to diversify trade by strengthening economic ties with BRICS nations and other developing countries in East Asia, Africa, and Latin America.
To further improve the effectiveness of economic policies, the authors make concrete recommendations in various areas of trade, technology control, economic diplomacy, and supply chain diversification. On trade, the U.S. government should continue to use tariffs as a leverage towards China, but seek to lower tariffs on non-sensitive consumer goods from China. At the same time, U.S. should launch the entry talks in joining the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). On technology control, the authors call for maintaining U.S.-China academic exchanges and collaboration in basis science, while downscaling U.S.-China inter-governmental exchanges in applied technology. Besides, there should be more external policy collaboration with allies and partners, and at the same time more internal policy coordination among various federal government agencies. On economic diplomacy, the authors suggest that the U.S. government should work with allies to offer open information and technical advice to developing countries, which have become easy prey for predatory loans and investments from China’s Belt Road Initiatives (BRI). On supply chain diversification, the authors emphasize the importance of strategic planning for critical materials, identification of choke points, and “friendshoring” of critical supply chains.
The U.S.-China confrontation on various fronts will grow more intense as China continue pursuing relentlessly its grand strategy to regain national prestige and expand its sphere of influence. That means China will only grow more ambitious and assertive in the international stage. For the next administration, checking China’s ambition and sustaining America’s economic advantages constitutes one of the most daunting tasks to tackle. To prevail in this front, American policymakers need to possess and integrate long-term thinking, calculated risk-taking, and undeterred persistence.
The article is based on RAND Corporation’s “The Effectiveness of U.S. Economic Policies Regarding China Pursued from 2017 to 2024”, authored by Keith Crane, Timothy R. Heath, Alexandra Stark, and Cindy Zheng. Read the full report