During his presidential campaign, Mr. Biden largely avoided direct skirmishes with the Trump Administration on China policy, knowing that the muscular approach under President Trump towards China is popular in political battleground states and on both sides of the aisle on Capitol Hill. Instead, he criticized President Trump for not being strong enough on China and for his scattershot approach to tariffs. Still, he declined to specify how his potential future Administration would approach the relationship differently, apart from working more closely with U.S. allies. Mr. Biden benefited from this approach politically, as it kept the focus on the domestic issues of the pandemic response and lagging economy, two areas that were winners for his campaign. But this tactic leaves the business community wondering how, precisely, Mr. Biden will approach the U.S.-China relationship and how they should respond.
An incoming Biden Administration will be under pressure to maintain a foreign policy that confronts China on national security and trade matters. As such, it is unlikely that a Biden Administration will make significant shifts in current U.S. policies towards China, at least in the first few months of 2021. Any effort to roll back the Section 301 tariffs on Chinese goods, for example, would require a quid pro quo from China, which would then likely involve at least some effort to deal with difficult systemic issues that were mostly put aside in President Trump’s “Phase One” deal. Similarly, some Biden (campaign? Future Administration?) foreign policy advisors have called for an effort to work with China on climate change, but it is not clear how much can be achieved in terms of substantive changes in Chinese domestic policies. Much like President Trump, who found himself flanked on either side by China hawks and doves, urging him to go further or cautioning him against going too far, Mr. Biden may also find himself stuck between wanting to have a more collaborative relationship with China and needing to take decisive action to address unfair trade practices and national security concerns.
Therefore, we largely expect many of the Trump Administration’s policies on China to continue, barring any unforeseen changes to the systemic dynamics between the two countries. Based on a review of Mr. Biden’s public statements, here are a few policy specifics that financial institutions can expect:
- Mr. Biden has been highly critical of the Trump Administration’s response to human rights concerns in Xinjiang and Hong Kong SAR. Companies should expect more sanctions on targeted Chinese companies and persons, making compliance in this space more complicated, including potential reporting obligations to the SEC for U.S. listed companies.
- Expansion of export controls of dual-use items, stricter scrutiny of end-users of technology, export control restrictions on Chinese nationals in the U.S., and existing actions against large Chinese companies are likely to stay in place or be expanded. The focus on commercial and military fusion will continue, with U.S. companies needing to restrict exports to military end-users in China.
- Pending legislation restricting Chinese companies listing on U.S. stock exchanges could be passed and supported by a Biden Administration.
- Sanctions on Hong Kong SAR and Chinese financial institutions under the Hong Kong Autonomy Act will remain a threat for anyone doing business with persons identified under the law as undermining democracy and the rule of law. • Efforts to reduce U.S. reliance on China for critical goods and to compete with China in emerging sectors such as artificial intelligence and 5G wireless networks are likely to continue, as will “clean network” initiatives seeking to exclude Chinese companies from U.S. networks.
- Mr. Biden will likely use executive orders and regulations to limit Chinese products and services in U.S. critical infrastructure, including U.S. information technology, telecommunications, bulk power networks, the use of critical minerals, and emerging technologies. • A continued heavy scrutiny of Chinese investments in the CFIUS review process.
- Mr. Biden said that Section 301 tariffs on Chinese goods have been “disastrous for business and farming” and that President Trump is going after China “in the wrong way”. However, he did not promise to remove the tariffs and is unlikely to remove the tariffs without China making reciprocal changes in other areas of focus, like intellectual property protections for U.S. companies. Companies may find more success in filing product exclusion requests than they did during the Trump Administration.
Even if the politics and policy towards China do not change much, a Biden Administration committed to traditional avenues of governance and diplomacy should lead to a more predictable policy-making process and more ways for companies to shape his Administration’s China policy. Companies should start working on their trade policy wish lists now, as this process is already underway.
Authored by Ben Kostrzewa and Andrew McGinty.
