By Therese Poletti
President Donald Trump inherited some problems in the relationship between the U.S. and China with regards to the technology industry. In response, he created more problems, and largely leaves them unresolved for his replacement, President-elect Joe Biden.
When Biden was vice president during the two terms of the Obama administration, the biggest initial concern was to expand funding of U.S. innovation directed at government research.
But in mid-2015, China unveiled its own big push into semiconductors with an unrelenting focus on developing its own chip industry, and to focus on other areas of technology like robotics, cloud computing and artificial intelligence. Before Obama left the White House, a group of advisers — with many tech industry leaders among them — issued a report about ensuring long-term U.S. leadership in the chip industry , and advised that some chip technology should be treated as a state secret.
Trump astutely made being tougher on China a key part of his platform while running for the presidency. But once he was in office, instead of focusing on government research and science to improve the U.S. position, Trump began a series of actions against China that put the U.S. into a more isolated position on the global stage. He even undermined the confidential process of the Committee of Foreign Investment in the United States (CFIUS), which reviews potential mergers, such as with his bizarre actions and executive orders around both banning and ordering the sale of the U.S. assets of social-media company TikTok, where he inserted himself as a deal broker to find U.S. companies as buyers.
Under Trump’s isolationist and retaliatory approach to global politics and trade, the U.S. is now locked in a trade war with China that is hurting businesses and consumers in both countries. The tariffs Trump established heightened animosity on both sides, but did not completely resolve the core issues involving tech and China, such as the fears over national security if U.S. data or certain technologies get into the hands of the Chinese government, or the lack of rights U.S. investors have when investing in Chinese companies.
Trump began his tenure by withdrawing from the Trans-Pacific Partnership, the multilateral trade agreement which was signed in early 2016 with 11 other countries in the Pacific Rim, including many U.S. allies, to establish some rules for global trade that could have counterbalanced China’s strength. The withdrawal of the U.S. led to the first agreement’s demise, while another was written without the participation of the U.S.
“We enlisted our allies, who had some of the same concerns [about China],” said Nicole Lamb-Hale, a managing director at Duff & Phelps who focuses on global regulatory compliance and a former official in the Commerce Department’s International Trade Administration under Obama.
One of the big concerns among every country involved in the pact was China’s tactic of requiring companies to license some of their technology to Chinese companies in order to have access to the Chinese market — the biggest in the world. Lamb-Hale said that before the withdrawal of the U.S. from the TPP, the group represented a formidable 40% of the global gross domestic product, forming a powerful bloc able to negotiate with China.
“There was power in numbers there, the centerpiece of that Trans-Pacific Partnership agreement,” Lamb-Hale said in an interview. “It was so disappointing to me that the U.S. did not stay in the TPP when Trump came into office. It was an opportunity to put China’s back against the wall. That is the hallmark of the approach Obama took.”
Trump had an approach in which he looked at everything like a one-off transaction, taking a page from his real-estate background, said Harry Broadman, a partner and managing director at the Berkeley Research Group LLC and a senior fellow at Johns Hopkins University. Biden, though, will likely join with U.S. allies and look for another approach, though he may still be tough on China.
“Biden is an internationalist,” said Broadman, a former White House trade negotiator under Presidents George H. W. Bush and Bill Clinton. “That doesn’t mean he will be soft on China; he will be far more strategic and take a ‘collective power’ approach. You can be just as tough, but you have to bring in your allies.”
Broadman also said that Biden will not deal with Chinese President Xi Jinping one-on-one, as Trump did. Already, Biden’s announcement that he will nominate veteran diplomat Anthony Blinken as secretary of state is further confirmation of Biden’s intent, with his nominee known as a defender of global alliances and international agreements.
“Biden will bring in other large powers not only on trade and technology issues but also on foreign policy and military concerns, which, for Trump were second order, largely because he didn’t fully appreciate their importance.”
In 2018, Trump began imposing tariffs on many Chinese goods coming into the U.S., beginning a tit-for-tat trade war with China, which retaliated with its own tariffs. The tariffs imposed by Trump included a huge range of tech products, because many tech products designed by U.S. companies are manufactured or assembled in China. This led to price hikes of some tech products, and/or profit-margin hits, where they could not or would not pass on the increased costs to their customers.
In mid-January, the U.S. and China signed Phase One of a trade agreement, one that cut some tariffs and created purchasing promises, with China committing to purchasing an additional $200 billion worth of American-made goods and services in 2020 and 2021.
China, though, is far from that goal. According to the Peterson Institute for International Economics, through October, China’s purchases of all covered products were thus far only at 56% (U.S. exports) or 55% (Chinese imports) of their year-to-date targets.
China has also been gradually reducing its purchases of semiconductors from the U.S., as it seeks to create a massive industry of its own, through its “Made in China 2025” plan, the state-led policy that aims to turn China into the world leader in technology manufacturing, and reduce its dependence on foreign technology.