US-China trade high now - but cutting tariffs and having better diplomacy is key to relations

Despite tensions between the superpowers, U.S.-China trade last year set a record at $630 billion. Figures show trade growing at an even faster pace over the last four months, with a 7 percent rise in U.S. exports, as imports from China declined 25 percent.

Whatever progress the superpowers can achieve over the next 16 months will be limited. That’s because Joe Biden will be hard-pressed by Republican challengers to stand up to their allegations that China threatens Americans’ jobs, privacy, values and futures. Biden knows “America First” rhetoric solidifies his core, blue-collar workers, and moves right-of-center voters into his camp in what will be a replay of the bitter and tight 2020 race. Criticism about Yellen’s three awkward “bows” to Vice Premier He Lifeng shows how trigger-ready Biden opponents are.

Given the inertia in U.S.-China relations, how can both build up from the new floor in the months ahead?

Restoring a measure of predictability and de-escalating the tone of tit-for-tat diplomacy is a mutual responsibility that must deepen quickly. Amid the many suspicions both must find common grounds for trust. The tensions have unsettled businesses and sidelined potential investments, a linchpin of economic growth.

More frequent and detailed contacts between U.S. and China counterparties represent another opportunity for progress. While neither agreed during Yellen’s visit on a formal process for another meeting before the 2024 elections, there are clearly commitments to talk more.

The first tests of the durability of improved U.S.-China relations lie in the management of two initiatives.

The first is the announcement, expected soon from President Biden, of “investment screens” that could block U.S. companies from investing in China in areas that would undermine U.S. national security to benefit China. The administration has faced substantial pushback from Wall Street companies and others over this.

The second pertains to the “301” tariffs that former President Donald Trump levied in 2018 on thousands of imports from China that were valued then at some $370 billion. These have put Biden in the crosscurrents of politics. While campaigning in 2020, he attacked the tariffs as adding costs for Americans, but after taking office he reversed himself. Yellen is reported to be lobbying internally to cut the tariffs. We may soon see the result of the 301 review and more exemptions by the U.S. Trade Representative.

Yellen was right to prioritize the urgent need for both nations to address the debt crisis of emerging market and developing countries. Both could have jointly urged multilateral institutions to work quickly on debt relief, so that these economies can shift resources away from debt service and toward ending severe food shortages and promoting sustainable development.