Biden administration trade challenge hits China’s dependency habit - WSJ

US President Joe Biden

The United States is amending its foreign policy to de-leverage Beijing’s manufacturing ability and also investing in its alternative options to kick China’s dependency habit, The Wall Street Journal (WSJ) reported.

US President Joe Biden has turned aside pleas to join pacts such as the Trans-Pacific Partnership (TPP), an accord between 12 Pacific Rim economies, or use access to America’s market as a tool of diplomacy.

Explaining the reason, US Trade Representative Katherine Tai, last week, while reiterating progressive criticism of free trade, argued it increased rather than decreased China’s influence over the world’s production networks, as per WSJ.

Past trade deals’ emphasis on efficiency and low cost caused “significant content to come from countries that are not even parties to the agreement,” she said. “These rules benefit the very countries that have used unfair competition to become production hubs.”

But the question remains the same how China received benefits from a free-trade agreement of which it is not a member? And the answer is “rules of origin,” which determine how much of a product’s value can come from outside a free trade area and still qualify for duty-free access.

This is the reason that the former US Trump administration renegotiated the North American Free Trade Agreement was that its rules of origin were so loose as to allow a growing portion of auto content to originate outside North America, particularly in China.

A similar argument was seen against the TPP when former President Barack Obama and repudiated by former President Donald Trump, reported WSJ.

Many Asian countries would love Biden to rejoin the TPP or turn his less formal Indo-Pacific Economic Framework into a free-trade agreement that lowers barriers to trade. But their goal in any trade deal with the US is to leverage their existing supply chains which are already tightly integrated with China. The result would be more, not less, dependence on Beijing.

Tai avoided singling out China in her remarks because Biden administration officials want to avoid unnecessarily antagonizing Beijing or ratifying its accusations (and allies’ worries) that the US harbours a “Cold War mentality.”

It is also because Tai, like Biden, sees free trade in general, not just with China, as part of a discredited orthodoxy that gave priority to efficiency and consumers while undermining workers, the environment and national security. In its place, they champion industrial policy and buy-American incentives, a doctrine I’ve called “Bidenomics.”

“We decided to replace this theory with what the press has now called ‘Bidenomics,'” Biden told a campaign-style event in Philadelphia on Saturday. “I don’t know what the hell that is. But it’s working.”

Biden is trying to address the vulnerability, from cultivating closer ties to India, which aspires to become an alternative manufacturing base to China, to negotiating critical minerals deals with Europe, WSJ reported.

Recently, when Prime Minister Narendra Modi visited the US, both nations signed a deal on the co-production of jet engines for the Indian Air Force, defence industrial collaboration, space sector cooperation, semiconductor supply chain and innovation partnership and collaboration in emerging Artificial Intelligence technology.

According to the publication, Tai is right as the trade agreements that increases the world’s dependence on one, potentially hostile, country undermines US security. Avoiding that should be a goal of future trade agreements. For example, TPP’s rules of origin could be renegotiated to discourage inputs from nonmarket economies, i.e., China.

For the US, Tai said, resilient supply chains mean “having more options that run through different regions.” Done right, trade can create those options.

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