Trade wars: Examining the Biden administration's China policy

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A deal with the Netherlands and Japan marks America’s latest effort to curb China’s semiconductor production.

Biden's version of economic populism contains some echoes from the Trump administration, and a willingness to engage in trade wars with China.

“Focus on advanced semiconductors in particular, I think the Biden administration is concerned that China will gain a military edge by having access to this technology," Jack Zhang says.

Today, On Point: Trade wars and examining the Biden administration's China policy.

Jack Zhang, assistant professor of political science at the University of Kansas who studies the political economy of trade and conflict in East Asia.

Jordan Schneider, adjunct fellow, technology and national security program at the Center for a New American Security. China technology analyst at The Rhodium Group. Host of the ChinaTalk podcast and the author of the ChinaTalk newsletter. (@jordanschnyc)

On a deal with the Netherlands and Japan to curb China’s semiconductor production

Jack Zhang: "This is a big achievement for the Biden administration and a key way in which their approach to the tech war, as folks call it, differs from the Trump administration. The multilateral approach rather than the go it alone kind of America first approach. And it's really crucial on this dimension of policy because if the U.S. unilaterally imposed export controls, other countries and companies could stand to benefit while American companies lose out. So it's a big deal to have these two largest makers of equipment and their governments sort of pressuring. I don't think they did it willingly with some foot dragging there, but to make that commitment."

On other countries prohibiting exports to the United States

Jordan Schneider: "What's interesting is that there honestly isn't a great analogy because what the U.S. did with the semiconductor export controls is restrict the sort of selling and, you know, technological upgrading of another country at the highest technological frontier. And at least for now, there aren't that many other sort of super high tech, you know, decades long, tens, hundreds of billions of dollars of R&D projects which other countries could necessarily single handedly cut off from the U.S.

"So people talk about potentially China doing something like a rare earth exports ban. But, you know, those are things you can dig out of the ground. That's not the sort of project of decades of research, which is what the U.S. was able to control with the October 7th export controls. So there isn't a near analogy, but China, of course, is, you know, trying to do technological upgrading on its own. And the hope of Xi and the rest of Beijing is that maybe one year down the road they'll be so advanced in a certain technology that that they could potentially use this sort of leverage against the U.S."

On the military cost of U.S.-China conflict

Jack Zhang: "I think that will be a big deterrent, right? When we're talking about large scale wars in a cross-strait conflict, the U.S. will most likely be involved. So you have the world's two largest economies, two biggest militaries fighting each other. And there's been a lot of studies to show that the military cost of the conflict would be catastrophic. Now, add to that the fact that the U.S. and China also are the most economically interdependent sort of countries, measured by the sheer trade volume.

"And that East Asia together, China trades a lot with Taiwan, as well. And a lot of trade routes, supply chains go through that region of the world. The collateral damage economically will also be massive. And so given those costs, one would hope that incentivizes towards caution no matter what direction sort of the winds of nationalism are blowing. It's just against economic and potentially political self-interest. To pay those high costs for, I don't know, uncertain gains."

How effective is a trade war against a country like China?

Jack Zhang: "It's trillion-dollar question. I probably would have a higher paying job if I knew the answer with great certainty to that one. But you know, I will echo what Jordan was saying. This is a really challenging sort of policy. ... But one thing that I want to add is something that you were saying earlier, Meghna, that who's paying the costs is a really important thing for us to ask here.

"And there is research that I've done in my lab here on tariffs, backpedaling to something we were talking about earlier. You know, those were justified on national security grounds. And they're supposed to help encourage sort of this reshoring or, you know, near shoring or whatever. But the evidence is very clear that we haven't had a lot of that observable sort of positive policy outcomes. But prices have gone up quite a bit, right? Companies have passed on those cost of tariffs to their customers and to consumers. And so the long way in the short way to saying this is a lot of these policies will have redistributive effects, not just across countries. Will it make China stronger or the U.S. stronger? Sure. That's one dimension of it.

"A lot of them will also have really significant domestic consequences where they'll make maybe some companies really profitable. Give them subsidies or whatever, and maybe they'll raise costs for everybody else. And for sure, politicians are not going to emphasize that aspect of these policies and this dimension of the competition. And the same thing is going to be happening on the Chinese side as well.

"And when we have this relationship that's built on economic interdependence and globalization, it means that things that we're doing, that tries to gain a little bit of an edge at the international level, to make the U.S. stronger or whatnot, vis a vis China, will require the sacrifices then of the domestic populace or maybe some companies within that. And that's a challenge that's even harder. Both are equally sized economic powers. You know, the U.S. is built larger, there's asymmetries there. But really, these domestic costs are going to be really important for us to reckon with."