The future of US-China business relations under Trump vs Biden

The lingering effects of the 2008 global financial crisis, rapid technological evolution, populist and nationalist politics, and COVID-19 conspired to accelerate US-China rivalry over the last two years. US-China relations are clearly on the ballot in the upcoming US election—but how will the outcome impact US foreign and economic policy toward countries like China?

The same objective, a different approach

If US President Donald Trump is re-elected, the current trajectory of more unilateral, coercive, and disruptive US foreign policy would continue. “America First” strategies for “great power competition” would further undermine international institutions and their architecture of predictable rules, standards, and mechanisms. The US would exploit transactional or situational relationships where it could leverage US strengths in finance, trade, diplomacy, intelligence sharing, or military power. Companies would find themselves increasingly caught between competing geopolitical imperatives and regulatory regimes.

Relations with China would be likely to deteriorate further. Personnel is policy, as the saying goes, and Trump is closing out his first term surrounded by a team of hawkish advisors that favor confrontation over accommodation with China. Trump is campaigning against China just like 2016, with COVID-19 substituting for the loss of manufacturing jobs in the catalogue of US grievances. A drumbeat of sanctions, export controls, trade restrictions, and other policy moves in 2020 underscores and to some degree cements the harder US line.

Yet even if Trump loses, we expect strategic US-China competition to continue. Polling data shows a steep deterioration in US perceptions of China over the last four years. There is a bipartisan consensus in Washington that the US needs to counter China more assertively in a wide range of areas. Both Democrats and Republicans increasingly advocate for protectionism and industrial policy, particularly in the wake of COVID-19-related supply chain disruptions. Congress is also aligned behind reinserting human rights into bilateral relations. Democratic candidate former vice president Joe Biden also wants to “get tough on China” as he competes with Trump for independent voters in the post-industrial upper Midwest “rust belt.”

If anything, the difference is more in approach than objective. Democrats view the Trump administration’s disruptive trade war as both counter-productive and ineffective. (The US trade deficit with China has remained relatively stable since early 2018). Meanwhile, Trump alienated traditional allies—especially Europe, Australia, Japan, and South Korea—with tariff threats, compensation demands, and diplomatic faux pas. (The damage is only partly offset by recent alignment on COVID-19 and technology issues).

Instead, Democrats propose to compete with China by repairing alliances and partnerships, as part of a broader revitalization of multilateral and institutional engagement. A Democratic administration would seek greater coordination and cooperation on issues like sanctions, trade controls, and regional diplomacy (here’s looking at you, North Korea). The Biden campaign has essentially said it would be looking to enlist key US trade partners not only in the Asia Pacific region—such as India, Australia, and Japan—but also globally, especially in Europe, to craft a common set of policies related to trade, intellectual property, and information security. Democrats also broadly favor carrots over sticks to encourage companies to relocate manufacturing to the US. Biden’s “green recovery” agenda revolves around innovating new technologies at home more than denying technology exports abroad.

A Democratic administration would have strong incentives to de-escalate external tensions to focus on domestic issues. In addition to preoccupation with the economic recovery from COVID-19, Democrats would prefer to focus on other “nation building at home” agenda items—which have been the main focus of their policy platform—such as climate change, healthcare, education, and infrastructure. Washington would be likely to seek a reset in relations with China, even as it maintained pressure on many issues. China would probably also welcome an opportunity to reset relations and contain future escalation.

The outlook for business relations

The biggest counterweight to the bipartisan push to get tough on China has been the US business community, which has substantial business equities in China, views it as a fast-growing market opportunity over the long term, and wants to increase market access there—not decouple and reduce relationships. Some of the most disruptive policy moves—such as forcing Chinese companies to de-list from US exchanges, categorical restrictions on technology exports, or curbing US investments and partnerships in China—have been forestalled by corporate lobbying.

Yet the underlying trend of an increasingly complicated (and in some ways riskier) business environment both for US and Chinese companies is set to continue. The US has expanded its scope of national security sensitivity with respect to China, covering emerging technologies (AI, 5G, quantum computing, biotech), data, pharmaceuticals, and many transactions involving state-linked companies. The US is also taking an increasingly hard line on human rights issues, both in terms of sourcing from and selling to Chinese companies.

Regulatory development and enforcement will tell if decoupling can be contained to specific areas – such as advanced technology – or will expand into the wider economic relationship. Global companies watch for more pressure from Washington on core manufacturing, financial services, agriculture, or other big chunks of US-China bilateral trade. Some initiatives drafted in Congress might well force companies to change or adjust their financial relationships – and this does not yet take into account how China might respond to US actions. Whoever wins the US election, companies are likely to face an increasingly complex and challenging business landscape.