On Jan. 20, Treasury Secretary Janet Yellen committed to “use the full array of tools” to counter China’s “abusive, unfair and illegal practices.” But however determined Yellen and the rest of President Biden’s team may be, the toolbox they inherited from the Trump administration is a few drill bits short.
Chinese state capitalism caught U.S. policymakers flat-footed. While far from perfect, the “China model” is dramatically reshaping global industry through the concentrated power of economic tools like subsidies, market protection, forced technology transfer and economic espionage. “CCP Inc.” now has the scale to “unleash waves of overcapacity that undercut U.S. firms, … support China’s military modernization and overseas expansion,” and, in so doing, threaten key U.S. interests.
Thanks to U.S. leverage over global economic networks, policymakers maintain an unparalleled capacity to push back using sanctions, export controls and investment restrictions. Trade, however, presents a unique dilemma. The World Trade Organization is not well equipped to deal with Chinese policies and requires substantial reform to meet the challenge. Meanwhile, U.S. trade instruments are limited, outmoded and even counterproductive when it comes to pursuing national security ends. The Biden administration should rethink its geoeconomic toolkit and work with Congress to provide the executive branch more effective means to respond to predatory Chinese economic policy targeting allies and strategic industries.
The Current Tools Don’t Measure Up
President Trump leaned heavily on Section 232 and Section 301 authorities during his China trade war. These tools were established and expanded between the 1960s and 1980s with the respective aims of protecting the U.S. defense industrial base and pushing Japan and Western European nations to restructure their economies in alignment with liberal ideals. Unlike today, the nation’s most prominent geopolitical rival back then—the USSR—was not a full participant in the international economic system. Section 232 was rarely employed before Trump, while Section 301 is a market access tool not well suited to addressing national security issues.
Trump’s China trade strategy failed. China survived Trump’s trade war, a campaign that amounted to the most pressure the U.S. could conceivably impose using traditional trade tools. Chinese President Xi Jinping has demonstrated his commitment to maintaining China’s “power trader” strategy. Pursuant to this framework, the state intervenes in the domestic economy to support industries that increase national power while using aggressive trade tactics abroad to increase market share and create dependencies.
Trump’s tariffs also didn’t achieve their domestic objectives. For example, he failed to resurrect the U.S. steel industry and injured manufacturers downstream in the process. In addition, Trump’s nontransparent and undisciplined use of Section 232 risks its legitimacy in future national security crises. His actions under the same authority against Canada, Mexico, the European Union and Japan strained credulity. Instead of yet another fruitless push to get China to embrace reform, the U.S. should aim to curb the worst excesses of China’s bullying international economic policy, while promoting strategic industries with trade actions and targeted industrial policy.
Sharpening the Tools
The U.S. needs to implement a multifaceted strategy to combat Chinese coercion. Success depends on a strong domestic foundation. As many observers have argued, Biden should support advanced and critical industries through coordinated industrial policies with an emphasis on international competitiveness in next-generation technologies and…