Jim McGregor, chairman of APCO Worldwide’s Greater China region and longtime China resident, gives CBBC his view on the upcoming US election and the implications for US-China relations.
At the time of writing, the final result of the US election remains in the balance. The future of US-China relations will be a top foreign policy priority for whoever emerges victorious.
In the event of the most likely outcome: a victory for Democratic candidate Joe Biden.
- McGregor expects Biden’s approach to foreign policy to be much more multilateral, going back to the norms of foreign policy.
- Biden has a ‘Buy American’ policy that appears in part to be a response to Beijing’s ‘Made in China 2025’ effort, with a plan to put $400 billion towards US government procurement of US products, and to invest $300 billion in technologies such as quantum computation, 5G, and artificial intelligence.
- A Biden administration will impose a 10% surtax on American corporations that move offshore to sell products back to the US. “It is interesting that this doesn’t go after US companies that are in China to sell to the China market.”
- On tariffs: Biden has been negative about them, but McGregor says: “I don’t see him giving them up any time soon.” Many in Congress understand that tariffs are paid by US consumers and businesses, so there could be a reckoning: “But they also serve as real leverage with China, and you don’t want to drop your leverage.”
Jim expects Biden’s policy to be “much more focused on human rights than the Trump administration has been.” This will inform policy towards Hong Kong, although the administration will also not want to “punish the Hong Kong people” with excessive sanctions.
- Biden spent a lot of time with Xi Jinping when he was vice president under Barack Obama; given anti-China sentiment in the US, “he has had to be defensive about that in the campaign.”
- Still, in the past, Biden has talked about the importance of the US-China relationship and the fact that the two countries have to get along.
- Biden has probably spent more time with Xi than any other US official having travelled with him both in the US and China.
- But he will want a “real dialogue” with Xi: “They’re not going to listen to a lot of nonsense.”
- China is going to have to climb down on its wolf warrior strategy in order to engage.
- There is one bilateral issue in Washington on which all agree and that is that China is a bad guy. “You say something nice about China in Washington these days, and you’ll be called a traitor. It’s really got that dark.”
- The US attitude is that many feel betrayed by China. There is a strong feeling that the US opened up its universities, markets and so to China, but that this goodwill has not been reciprocated. “This is the strong American attitude, and I understand that.”
- There is a strong feeling in Congress that the US needs to be tougher in enforcing international rules on China when it goes beyond its borders, with less emphasis on “sitting round a negotiating table trying to persuade China to change its model.”
- A big question for Chinese entrepreneurs now is whether they will be able to build big international companies, given the Communist Party’s moves to be more involved in private businesses and China’s ability to request data from them. “There’s this distrust of China Inc, and distrust of the Chinese government.”
Biden policy advisers
Influential people who are likely to shape US policy on China under Biden include:
- Tony Blinken – a former Deputy National Security Adviser. He has talked about the importance of reciprocity in US-China relations.
- Samantha Power – a possible Secretary of State. She has said that if you succumb to China’s bullying and intimidation, you can expect only one thing – more of the same. Like many former Obama administration people, she is now taking a harder line on China.
- Lael Brainard – possible Treasury Secretary. She has said China’s economy is now too large for it to pick and choose which rules it will follow.
- Ely Ratner – a key advisor who has said the China challenge is more about the US and its competitiveness.
A return to multilateralism?
- Biden may push for a revival of the Iran nuclear deal, and for the US to re-enter the Paris climate deal.
- He will “stop the destruction” of the WTO, but will push for reform to make it less easy for China to play rivals off against each other. “We do need a strong multilateral trade organisation, and China needs it as much as anyone.”
- Biden has also talked about forming a group of democracies partly in an effort to withstand China. There will be a “lot less worry” in Washington that this might offend China.
- Under Biden, the US may look to rejoin the CPTPP, but it may be hard to get back in. Withdrawing from the deal may have been the “dumbest thing the US has done since invading Iraq. It was so upsetting to those countries, they’re going to extract a big price to let us back in – and they should.”
- Biden is likely to be careful in his approach towards Taiwan. There is a lot of support in the US Congress for the US to pursue a free trade agreement with Taiwan, while Biden may support its entry into bodies such as WHO.
US Business Community
- McGregor was among those who helped to push for China’s entry into the WTO. “But China changed, first under Hu and Wen in their latter years, and then under Xi Jinping.”
- McGregor believes China is now going through a period of ‘reform and closing’, in contrast to the post-1978 ‘reform and opening up’ period. Beijing is focusing on reforming its own companies, but closing up to foreign companies that it can replace.
- US multinationals do still “need to be in China: If they are not in China they are going to lose out globally – you’ve got to be a player in China. You can’t not be there.” Most US companies are in China for the China market, and those companies are doubling down.
- Under Beijing’s new ‘dual circulation’ strategy, China may give more opportunities to companies in the tech and retail sectors.
- But companies have to go in with both eyes open. China “will welcome you – but it’s not their goal to have you there for the long term. To quote Mao Zedong, China will ‘Use the past to serve the present, let foreigners serve China.’”
- US business wants to be allowed to carry on operating in China, “but they also are going to have to show they care about the United States and are investing in the US at the same time.”
- Doing business in China “used to be like all-star wrestling. You got bounced around, but never really got hurt bad with no lasting damage. Now it’s like UFC – where it’s much more brutal and you can get hurt bad.”
- Jim’s advice: “You’ve got to really pay attention to policy – that’ll help you get through the minefield and you might even find opportunities.”
- A second Trump term may see a somewhat softer approach towards China.
- Trump will be focused on building back the US economy for a second time. If he’s going to do that, he’s going to need China. US companies have to be in China, and have to have good market share there.
- Trump “won’t need China any more to beat up.” He’ll start being nice to Xi Jinping again, start buttering him up.
- China hawks such as Secretary of State Mike Pompeo, or US trade representative Robert Lighthizer may drop out of the administration or be more marginalised in a second term. Matt Pottinger, who has been responsible for much of Trump’s approach towards China, has already said he will leave the administration.
Advice for the UK and UK business
- McGregor urges the UK not to return to the ‘golden era’ of UK-China relations: “China doesn’t respect anyone who sucks up,” he said.
- Post-Brexit Britain may be seen as “ripe hanging fruit among Western democracies” by China, but we should not let ourselves be intimidated. “You’ve got to be careful about putting yourself in a subservient position to China.”
- Britain has a strong reputation in areas such as tech, science and finance, and we should emphasise those qualities in doing business in China, while realising that “China’s goal is to learn what you do and then do it themselves.”
- Business should learn a lesson form Xi, who is preparing China for long term hostility from the outside world.
- “You’ve got to try to make yourself sanction-proof. But you have to look at the cost – are you making enough money in China to cover the cost of sanctions preparation?”
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