US-China Economic Trends
There are several key issues you need to know about US-China economic trends and trade relations in 2024
After U.S. President Biden and Chinese President Xi Jinping held a face-to-face meeting in California last November, U.S.-China relations have generally stabilized. However, the results of Taiwan’s presidential election on January 13 and the U.S. presidential election to be held in November this year have It will undoubtedly affect the future direction of US-China relations. Experts say pressure to take a tough stance on China in a U.S. election year could lead the Biden administration to impose additional export controls and expand the economic safety net, or at least make such a gesture while trying to avoid threats to the U.S. private sector. Imposing significant new restrictions.
Regarding US-China economic trends and trade relations in 2024, here are some key issues you need to know.
For the United States, 2024 is not only an election year but also a landmark year for trade, technology, and economic security policies. The Biden administration will continue to implement landmark legislation such as the CHIP Act and the Science Act and will continue to advance the broader economic security agenda with allies and partners to ensure supply chain security in some critical sectors. There is no doubt that the U.S. presidential election and the Biden administration’s trade, technology, and economic security policies will have a significant impact on U.S.-China economic and trade relations.
1. The Biden administration will continue to maintain tariffs on China
In the three years since it took office, the Biden administration has basically maintained the high tariffs imposed on approximately $300 billion in goods from China during the Trump administration. The Office of the U.S. Trade Representative is still reviewing whether to remove these tariffs. During this period, the office exempted some products from tariffs based on domestic demand, including announcing at the end of last year that the “301” tariff exemption period for 352 Chinese imported goods and 77 COVID-19-related products would be extended from December last year. 31 was extended again to May 31, 2024, and starting from January 22 this year, public opinions were solicited on whether the scope of specific exemptions needs to be further extended.
Former U.S. Assistant Trade Representative Stephen Lande pointed out in an interview with the media that, given that the Office of the U.S. Trade Representative is still reviewing China’s tariffs and coupled with this year’s presidential election, the Biden administration may only review some tariffs. Some adjustments were made to tariffs on consumer goods.
“I particularly noticed the lack of discussion between the U.S. and China [on tariffs], and my guess is they’re not going to change a lot about it. You know, they have enough problems with the election,” Landy said.
Axios recently cited unnamed sources as saying that the Biden administration is preparing to increase import tariffs on China’s electric vehicles and important minerals such as cobalt and lithium while reducing tariffs on related consumer goods.
Derek Scissors, an economist at the American Enterprise Institute who studies US-China economic trends and issues, believes that the Biden administration is indeed considering raising tariffs on some products and reducing some tariffs, but it will not take many actions before the election.
“The Biden administration has been weighing for some time the trade-off between reducing some Trump-era tariffs on China while raising them in new areas, but confusing the issue in this way is a political risk. I doubt anything will happen before the end of the year,” he told the media via email.
In the context of strategic competition between the United States and China and the U.S. presidential election, both the Republican and Democratic parties in the United States, as well as most people, want to take a tough stance against China, and no presidential candidate wants to be shaped by his opponents or viewed by the public as weak towards China.
2. The United States may send a signal to restrict investment in China rather than specific measures. An executive order
formally signed by President Biden on August 9 last year, prohibited U.S. private equity and venture capital firms from investing in semiconductors and microelectronics, quantum information technology, and certain Chinese high-tech enterprises in three fields, including some artificial intelligence systems, to prevent U.S. capital and expertise from being used to accelerate the development of technologies that may support China’s military modernization and threaten U.S. national security.
The new executive order has not yet been implemented. The U.S. Department of the Treasury, which is responsible for implementing this executive order, is drafting relevant regulations, including refining the definitions of key terms, establishing penalties and enforcement procedures for violations, and soliciting public comments on the scope of this new restriction. Before the introduction of this new investment control rule, American investors had already reduced their investments in China due to the deteriorating relations between the United States and China.
Data from the independent research institution Rhodium Group shows that in 2022, U.S. direct investment in China will be US$8.2 billion, a 20-year low, while US venture capital investment in China will be only US$1.3 billion, also a ten-year low point. Emily Benson, director of the trade and technology program at the Center for International and Strategic Studies, a Washington think tank, believes that in an election year, each presidential candidate will face pressure to take a tough stance on China, which may lead to additional control measures and an expanded economic safety net. “On the other hand, it is not in the interests of the current president to impose significant new restrictions on the U.S. private sector.
Therefore, proposals to restrict foreign investment are likely not to be fully realized until after the election, and possibly even until 2025. However, this does not prevent the current administration from exploring and communicating its intention to impose additional export controls and investment restrictions. Mere signaling may further chill bilateral trade and investment without going as far as regulating the flow of capital, goods, people, and knowledge,” she told the media via email.
Jian Dao of the American Enterprise Institute believes that President Biden does not need to take any action on the issue of investment in China and only needs to communicate with China. Landi, the former assistant U.S. trade representative, particularly emphasized the pressure exerted by Congress on the administration. He said that since taking a tough stance against the CCP has become the consensus of both parties in the United States, every time the Biden administration makes any trouble on issues related to China, it will be loudly blocked by both parties in Congress.
He believes that in the presence of a bipartisan House Select Committee on Strategic Competition between the United States and China without an influential group supporting improving economic and trade relations between the two countries, the administration will not take any actions that will benefit China.
3. The U.S.-China technology war further intensifies.
As the United States regards China as its biggest strategic competitor, national security and economic security have become the most important considerations. After updating export control measures restricting China’s access to advanced chip technology in October last year, the U.S. Department of Commerce is further tightening relevant restrictions. Commerce Secretary Raimondo has previously stated that he expects to update relevant export control measures “at least annually.”
Just on New Year’s Day this year, under pressure from the Biden administration, Dutch chip equipment manufacturer ASML said that the Dutch government revoked some of the company’s licenses to export equipment to China weeks before the relevant export ban took effect. This includes photolithography machines. There are signs that the United States’ containment policy against China’s chip development may be extending from the embargo on cutting-edge production technology to the so-called traditional manufacturing field.
The U.S. Department of Commerce announced in late December last year that it would investigate the use and procurement of traditional chips made in China by key U.S. industries and assess the dependence of the semiconductor supply chain on Chinese chips.
On January 10, during a phone call with U.S. Commerce Secretary Raimondo, Chinese Minister of Commerce Wang Wentao expressed China’s “serious concerns” about U.S. restrictions on third-party exports of photolithography machines to China and investigations into mature process chip supply chains. However, the U.S. Department of Commerce said in a statement about the call that Raimondo emphasized that the U.S. government’s “small courtyard and high wall” approach to export controls to China is not to curb China’s economic development, but to curb China’s economic development. Preserve U.S. national security and values without unduly restricting trade and investment. She reiterated that national security issues are non-negotiable.
However, the latest report from the media said that its review of bidding documents showed that China’s military agencies, state-owned artificial intelligence research institutions, and universities purchased in the past year small quantities of Nvidia-produced semiconductors that the United States banned from exporting to China. The chips are not being sold by Nvidia or its approved retailers. It’s unclear how these Chinese suppliers obtained the chips. This highlights the difficulty Washington faces in enforcing its export controls on China.
In addition, the U.S. Congress is also stepping up scrutiny of companies with interests in China. According to the Financial Times, the House of Representatives Ad Hoc Committee on Strategic Competition between the United States and the Chinese Communist Party sent letters to Intel, Nvidia, and Micron on January 11, requesting the CEOs of these three US chip manufacturers to testify before Congress.
4. China’s stimulus measures to promote production capacity may trigger new trade frictions.
Under the influence of multiple factors, such as weak domestic and foreign demand, the real estate crisis, and the withdrawal of foreign investment, China’s economy is struggling. Some measures taken by the authorities to stimulate the economy may trigger a new wave of trade frictions with some countries, including the United States.
A recent report from Bloomberg News said that with real estate-related sectors dragging down economic growth, China’s leaders are injecting capital into manufacturing, including focusing on what they call the “three new” growth drivers of electric vehicles, batteries, and renewable energy. , thereby helping to promote global decarbonization and stimulate demand for commodities such as copper and lithium.
The report believes that this strategy has so far helped China avoid the economic recession experienced by Japan in the 1990s and the United States during the subprime mortgage crisis in 2008, but it has also exacerbated imbalances and created a gap between China, developed countries, and those who are struggling to move up the industrialization ladder. A new round of global trade tensions among emerging economies has laid the foundation for a low-level transition.
Economist Shi Jiandao believes that since Xi Jinping came to power, he has always regarded higher value-added manufacturing as a solution to promote China’s economic development, and he is not just starting to do so now.
He said, “What will now exacerbate trade tensions is China’s stimulus measures to increase production capacity while consumption remains weak and Chinese companies try to dump surplus products on the international market, as they have done in the past.” The U.S. Commerce Department
announced The latest data shows that from January to November this year, U.S. imports of goods from China fell by more than 20% year-on-year. China accounts for 13.9% of total U.S. imports, its smallest share since 2004, and its share peaked at more than 21% in 2017. U.S. exports to China were basically the same as the same period last year.
Smith, who has been tracking US-China economic trends and trade for a long time, predicts that compared with last year, the U.S. merchandise trade deficit with China will decrease by US$100 billion this year, which will be lower than during the epidemic and reach the lowest point since 2010.
He said that the main reason why the U.S. goods trade deficit with China has decreased is because China’s zero-clearance policy has caused U.S. companies to no longer regard China as a reliable supplier, although it is still irreplaceable for many companies.
5. The two sides will continue to strengthen dialogue on economic and trade issues.
Although the prospects for US-China economic trends and trade relations in 2024 are not optimistic, the series of dialogue and communication channels established by the two sides last year will help reduce misunderstandings to a certain extent.
U.S. Treasury Secretary Yellen is planning to visit China again in the first half of this year. Speaking to business leaders at a dinner celebrating the 50th anniversary of the founding of the U.S.-China Business Council in mid-December last year, she said the United States would continue to be committed to clearly communicating with China on U.S. actions.
“We do not seek to resolve all our differences, nor do we seek to avoid all shocks. That is not realistic at all,” Yellen said. “But our goal is to make our communications resilient so that when we disagree, when shock occurs, we can prevent misunderstandings from escalating and causing harm.”
The United States and China launched the Economic (EWG) and Financial Working Group (FWG) after Yellen’s visit to China last year to conduct continuous contact and communication on substantive economic and financial policy issues. The two working groups held two meetings, respectively, in October and November last year.
In addition, the United States and China also agreed to establish a new working group to resolve trade and investment issues between the two countries during US Commerce Secretary Raimondo’s visit to China last year. The two sides also agreed to launch an export control enforcement information exchange mechanism as “a platform to reduce misunderstandings about U.S. national security policies.”
Following the meeting between the Commerce Ministers of the United States and China during the Asia-Pacific Economic Cooperation Leaders’ Meeting in California last November, the two had a phone call on the evening of January 10. The Commerce Department said the two men emphasized the importance of using working groups established by the U.S. and Chinese Commerce Departments to address commercial issues of concern. In addition, the two discussed plans for in-person meetings between the working groups.
Some observers are skeptical about how useful these working groups will be, but Benson of the Center for Strategic and International Studies told the media that these re-established communication channels between the United States and China can at least serve as a forum for expressing grievances, and diplomatic negotiations can also produce concrete results.
In Economic Diplomacy 2024, it is a job well done that a crisis is averted, and the same is true in terms of trade and economic policy. So the mere existence of additional channels of communication between the two countries can in itself help to ease tensions in certain areas, although it requires input and joint efforts from both parties,” she said.
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