US election 2020: Trump and Biden both vow to reduce reliance on China, but methods will be ‘night and day’
- Both US President Donald Trump and challenger Joe Biden have pledged to restore manufacturing, including by punishing American firms that move jobs abroad
- Joe Biden may seek to work with allies to form a coalition to counter China dependency, while Donald Trump would likely go it alone, analysts say
As voters in the United States prepare for the presidential election on November 3, the South China Morning Post is exploring the potential ramifications for China. The ninth part in the series looks at how the potential China trade policy of Joe Biden would differ from that of Donald Trump. Read the entire series here.
In his Mexico City office, while the coronavirus pandemic has raged, Samuel Campos’ phone has been ringing off the hook with firms looking to move their manufacturing to Mexico.
“These companies need a North American supply chain now because they don’t want to lose their contracts north of the border,” Campos added. And the recently signed trade deal has helped convince them that Mexico is a better launch pad to the US than China is.
This is not a new trend.
Higher-end firms in the electronics and automotive sectors are now leading the way in diversification. Taiwanese giants Foxconn and Pegatron – both major suppliers to Apple – are eyeing factories in Mexico to help buffer the risks of a new cold war emerging between the US and China, Reuters reported.
Governments, including those of South Korea, Taiwan, Japan, Australia and India, are prioritising reducing dependence on China, in line with the stated policies of both US presidential candidates.
Researchers at McKinsey estimated that, in the coming years, up to 26 per cent of global exports – valued at US$4.6 trillion in 2018 – could be on the move, “whether that involves reverting to domestic production, nearshoring, or new rounds of offshoring to new locations”.
The world’s supply chains will get shorter and less China-centric, even if the strength of the mainland’s manufacturing base makes it impossible to completely cut it out of the equation.
So, whomever is holding the keys to the White House on January 20 will be doing so amid this deglobalising world economy, with US-China decoupling at the heart of it.
06:04
US-China relations: Joe Biden would approach China with more ‘regularity and normality’
However, the extent to which the supply chain unravels – and the manner in which it does – will depend in large part on who is president for the next four years.
Both men would pursue plans to repatriate the production of critical medical and drug supplies, and both would try to minimise their nation’s reliance on China.
But analysts say that Trump is likely to drive unilaterally forward in isolation from US allies, while Biden is expected to take a more multilateral approach.
“I agree that both [Biden and Trump] talk about increasing manufacturing employment in the US and increasing resilience to global shocks, including those foremost in voters’ minds, like Covid-19,” said Emily Blanchard, an expert in global value chains at Dartmouth College’s Tuck School of Business in New Hampshire.
“But beyond the talking points, the entire strategy would be like night and day. Trump is taking an aggressively, belligerently unilateral approach, saying we’re going to do it on our own.”
Trump’s approach was laid bare during a Labour Day address in which he vowed to reward firms that manufacture in the US and to penalise those that stay in China.
“We’ll create made-in-America tax credits and bring our jobs back from China to the United States, and we’ll impose tariffs on companies that desert America to create jobs in China and other countries,” Trump said. “If they can’t do it here, then let them pay a big tax to build it someplace else and send it into our country.”
00:49
Donald Trump again threatens to scale back US economic ties with China
His second-term agenda says firms that outsource to China will be excluded from federal contracts. Only once does the agenda refer to America’s “allies” – under the “America First Foreign Policy”, where it reads “Get Allies to Pay Their Fair Share”.
This would be a continuation of Trump’s policies over the last four years, during which he has tried to kneecap China with one hand while using the other to alienate allies with tariffs and threats. And in a second term, without the need to consider re-election, Trump could be largely untethered.
One attempt at multilateralism by the Trump administration was the Economic Prosperity Network, launched in May, which saw the US government reach out to Australia, India, Japan, New Zealand, South Korea and Vietnam in an effort to reduce dependence on China for manufactured goods.
“Countries have woken up and seen that their economies have been co-opted by entangling supply chains,” said Keith Krach, undersecretary of state for economic growth, energy and the environment, in a June speech, discussing the network. “The world has thought about it. It’s always been the 800-pound elephant in the room, and it’s time people started talking about it.”
“The Economic Prosperity Network has done nothing. If they’d throw some money at it like Japan, it has the potential to find ways to pressure companies to engage in leaving China,” said Eric Miller, president at Rideau Potomac Strategy Group and a former trade adviser to the Canadian government. “There’s carrot and stick, and Trump is all stick, because he likes the image of wielding the stick.”
But Biden has shown that he is also not averse to wielding the stick. He recently announced a plan to use surtaxes to punish firms that move jobs and manufacturing offshore with an aim of selling goods and services back to the US.
On the other hand, he said companies that revamp closed US factories could enjoy a 10 per cent tax break. On this point, there is little difference between the candidates, who have both promised to perform emergency surgery on American manufacturing.
Unlike Trump, though, Biden has vowed not to go it alone, which will be music to the ears of diplomats from erstwhile US allies, many of whom privately admit they are desperate to see the back of Trump and to start building an alliance against China.
Interviews with dozens of academics, advisers, officials and economists in recent months point to Biden buying into the global desire to diversify away from China.
Compared with the Trump platform’s single reference to US “allies”, two of Biden’s economic and supply-chain policy documents mention “allies” 17 times.
02:39
Chinese dissident Chen Guangcheng calls on support for Trump at US Republican National Convention
The references are couched in pledges to “rally our allies in a coordinated effort to pressure the Chinese government and other trade abusers to follow the rules and hold them to account when they do not”, and “work with allies to reduce their dependence on competitors like China while modernising international trade rules to secure US and allied supply chains”.
But whomever wins the election must deal with the economic realities of reshoring.
The US domestic economy is likely to be on its knees, while few firms can afford to manufacture there.
“At the end of the day, the economics need to work,” said Patrick Van den Bossche, a Washington-based partner at reshore specialists Kearney. “With coronavirus, everything in the supply chain – due to the need to social-distance in plants, diversify your factories across locations – is more expensive.
“Then, on top of that, you come to the US and the labour cost per unit is through the roof – that is not an easy decision to invest.”
At the same time, many firms simply do not want to leave China, and it would prove difficult to force them to do so.
A recent survey by the Shanghai branch of the American Chamber of Commerce showed that 92.5 per cent of respondents had no plans to leave completely, with only 5 per cent planning to return to the US. More than half of those surveyed wanted to continue to produce in China to sell in its huge domestic market, so the incentive to return home does not exist for them.
Elizabeth Baltzan, a US trade official under former presidents Barack Obama and George W. Bush, suggested that Biden will bring a dose of realism to the debate, but he will also be under pressure to stake out an industrial policy to rival China’s.
“It’s not about rebuilding what we had in the ’50s, it is a strategic evaluation of what industries the US needs to reshore, and what industries need to be diversified so they are not so heavily concentrated in China,” Baltzan said. “There are concerns that, if China executes Made in China 2025 the way it has executed steel, aluminium or solar policies, the US can’t have sustainable industries unless there’s some sort of subsidies arms race.”
04:45
China’s most-senior diplomats, Wang and Yang, conclude back-to-back visits to Europe
“The trend of economic decoupling in key supply chains and technology sectors is inevitable, and any country would be worried about that, especially China, which has so many foreign companies,” said Wei Zongyou, a professor with the Centre for American Studies at Fudan University in Shanghai. “If they leave, it will be bad news for the Chinese government, which should do more to offer a level-playing field and improve the business environment.”
But Trump’s re-election could create a different sort of pressure. If he acts unilaterally, unhinged from the election cycle in a second term, many fear this would edge the US and China closer to war and further dice up the global trading order.
Last year, it was common for Chinese academics and officials to say they wanted four more years of Trump, with some saying he was “destroying” the US. But now, given the escalation in tensions, it is less cut and dried.
Wei says he expects Trump to win the election but noted that whomever the next US president is, they will not be favourably disposed to China.
“Either way,” he says, “we are in for four more tough years ahead.”