Biden’s China Economic Strategy Takes Shape, but Tensions Remain

Late last month, U.S. commerce secretary Gina Raimondo made a valuable addition to the anthology of Biden administration speeches on China. Hers was the clearest and most persuasive presentation to date of the main strands of U.S. economic strategy toward China. Yet the speech also highlighted a few unresolved tensions and gaps in the Biden approach to China—and in its international economy policy more broadly.

Noting that Beijing had abandoned the path of reform and opening that had been the rationale for earlier U.S. economic engagement with China, and citing a “dramatically transformed strategic environment,” Raimondo laid out four components of Biden’s economic strategy: investing in competitiveness, innovation, and talent at home; hardening defenses against threats to U.S. workers, businesses, and national security; aligning with allies and partners to shape the environment around China; and continuing to engage with China in ways consistent with U.S. interests and values. 

There was much to like about the speech. It was the clearest articulation yet by a senior Biden official of the need to balance the imperatives of protecting U.S. national security and remaining engaged with China economically and diplomatically. As discussed further below, this is a tricky balance to strike and will require skillful choreography along all four lines of effort presented by Raimondo.

The speech was also pitched well in both substance and tone. Raimondo implicitly started with a presumption of economic openness and market-based solutions as being best for both U.S. prosperity and security, with government interventions such as industrial policies and export controls as exceptions. She stated clearly that the United States is “not seeking the decoupling of our economy from that of China’s.” And the tone of the speech was confident and optimistic, not dark and forbidding, as too many presentations on China in Washington are these days.

The Biden administration has taken significant steps along each of the four lines of effort laid out by Raimondo. On the first, it has won congressional approval for roughly $2 trillion of domestic investments over 10 years through the Bipartisan Infrastructure Act, the CHIPS and Science Act, and the Inflation Reduction Act. On Raimondo’s second component, the administration has pursued a systematic—and so far judicious—tightening of national security protections, including the sweeping semiconductor export controls imposed on October 7.

Despite the agitation that these first two sets of actions have provoked in some allied capitals, the Biden administration has demonstrated a genuine impulse to work with partners in Europe and Asia, consulting regularly and using an array of new and existing forums—from the G7 to the Quad—to strengthen allied cooperation. And finally, President Biden’s meeting with China’s President Xi Jinping last month in Bali was a nod to the fourth of Raimondo’s components: finding a way to work constructively with Beijing.

So again, there is much to like about Biden’s China economic strategy. Yet two unresolved issues and one major gap remain. Essentially, these correspond to the three tensions in Biden’s approach to international economic policy that I identified in a piece published on the first full day of the administration in January 2021.

One tension is between Raimondo’s first and third lines of efforts: investing at home and working with allies. This has now blown to the surface as allies in Europe and Asia pummel the administration for the subsidies and local content requirements for electric vehicle and battery production included in the IRA, which allies say discriminate against their commercial interests. One Korean official even called the IRA provisions “a betrayal,” and another former official said it was “like being stabbed in the back.” This does not bode well for administration efforts to persuade allies to follow the United States in sharpening competition with China.

President Biden said publicly during the recent visit of President Macron of France that he would find a solution to the IRA problem that supports allied interests, but this will be difficult in practice given congressional dynamics and the clear language of the law favoring North American producers. More broadly, the White House has work to do to allay understandable allied concerns about a protectionist bent in U.S. policy in recent years, which started with the Trump tariffs but has continued through the first two years of the Biden term.

The second tension is between the administration’s dueling impulses to confront Beijing and to engage with it. In her speech, Raimondo acknowledged this tension by elaborating in her fourth component on the reasons to engage—from export opportunities presented by the large Chinese market to the imperative of working with Beijing on shared global challenges such as climate change and food insecurity. The White House emphasis on a “small yard, high fence” approach to export controls is also premised on the idea that Washington and Beijing can continue to interact in the rest of the garden.

But, to use another popular metaphor, is it really feasible for the United States to run faster, attempt to trip up China, and also expect Beijing to want to remain in a friendly race? With the Trump tariffs still in place, technology controls ratcheting up, and China doubling down on its own version of decoupling—technological self-sufficiency—there is good reason to doubt whether Beijing will be willing to engage constructively with Washington, even on shared global concerns, let alone the nonmarket practices and human rights abuses that Raimondo cited in her speech.

This is not to argue that the first three strands of Raimondo’s approach are misplaced; all are vital. But it will be important for the administration to make clear in its words and actions that these are targeted responses to specific concerns about U.S. competitiveness and national security, not a wider effort to stymie China’s development. It would also be useful to seek Beijing’s practical cooperation on the most pressing global public goods such as food, health, and a sustainable climate through institutions in which the United States and China are both members—the World Bank, World Trade Organization, and Asia-Pacific Economic Cooperation (APEC) forum, which the United States will host in 2023.

In addition to these tensions, there is one gaping hole in the Biden administration’s China economic strategy: lack of a credible trade policy. If, as Secretary Raimondo stated forcefully in her speech, the United States wants to work with allies and partners to “advance our shared values and shape the strategic environment in which China operates,” then a trade policy that incentivizes partners to join us in advancing U.S.-preferred economic rules and norms is essential.

As I have written elsewhere, the Indo-Pacific Economic Framework (IPEF), Partnership for Global Infrastructure and Investment (PGII), and other initiatives cited by Raimondo have promise, but they lack two key elements of a traditional trade agreement: a single point of leadership in the executive branch, and congressional buy-in. The latter in turn is essential to deliver two things U.S. partners want: incentives for them to adopt high standards—greater market access or money to support economic development—and a sense of durability to U.S. undertakings.

Having achieved historic investments in U.S. economic strength, and facing a Republican majority in the U.S. House of Representatives in the second half of its term, the Biden administration has an opportunity in 2023 to pursue a more robust trade policy that advances not only U.S. commercial interests but also its preferred norms and values.

Two years into the Biden administration, the elements of its China economic strategy are coming into clearer definition. Overall, the approach is sound, but it needs a few tweaks and additions to persuade domestic stakeholders, allies and partners, and Beijing itself that the administration is serious about balancing competition and engagement and advancing shared interests. No less important, a more confident, optimistic tone from Washington policymakers—the kind used by Secretary Raimondo in her speech—would be welcome.

Matthew P. Goodman is senior vice president for economics at the Center for Strategic and International Studies in Washington, D.C. 

Matthew P. Goodman

Matthew P. Goodman

Former Senior Vice President for Economics