By Kenneth Rapoza, CPA Industry Analyst
With the exception of scolding China and threatening fines against companies doing business in Xinjiang — home to the Uyghur Muslims — many of our key allies from Canada to Europe do not see eye-to-eye with Washington on dealing with Beijing’s economic model. Even the WSJ and FT are now noting that to be the case.
When both the Wall Street Journal and Financial Times, within 48 hours of each other, put out articles highlighting the Biden administration’s difficulty in working with allies, you know getting the EU, Canada and Australia on board with Washington’s China policies will be a tough slog.
Both papers are the preferred voice of the global financial powerhouses. They don’t want chaos. They want order and predictability. Working with allies was the pre-Trump way to deal with China. Giving veto power to the G7 over US national and economic security is so 2015. The WSJ and FT are seeing the same thing .
“China’s luck is continuing as it appears any such front will at least take a lot longer to form than originally anticipated and…perhaps never coalesce in any meaningful way,” wrote Tom Mitchell in the FT’s Trade Secrets blog on Tuesday.
CPA’s take on working with allies is that there exists a tension between reindustrializing large swaths of the US and the quality of our employment versus collaborating with allies who also have their own national and economic interests. Our interests will not always align, and when they do, the risk/reward on actions taken will be different.
We think it is a worthy effort. And on some fronts, we are seeing eye to eye.
The US has shown it is willing to ban imports of certain goods made from forced labor in Xinjiang China, home to the Uyghur Muslims. The UK has opted to threaten companies with fines for doing business there if their product is deemed to have been from forced labor. Germany has done the same. So has Japan.
On issues related to commercial trade however, other than Japan offering its multinationals money to take some of their supply chains out of China, the EU companies are not anywhere near adopting such rhetoric or promoting a move. The EU and China signed an investment treaty in December indicating firm political interest in keeping the two economies enmeshed. Now that seems to be put on hold because of the human rights question.
We shall see where that goes.
We have seen that our allies are often more willing to issue sternly worded letters to China, but not actually join us to cause pain or impose the cost on China.
In late January, Angela Merkel told the World Economic Forum that she was opposed to “building blocs” to gang up on China or any other power. This was Biden’s entire campaign on China – building “true international pressure against China”, then seen as a counterpoint to what was a Trump “go-it-alone” strategy.
Around the same time, French president Emmanuel Macron said he believed “a situation (enjoining) all together against China” would be “counterproductive”, Mitchell noted in the FT.
Biden administration officials shaping China policy said that “taking other countries’ interests into account is necessary to getting them on board,” a March 1 WSJ article stated. That was all designed to be counter-Trump, who often quarreled with allies, which some critics said allowed China to expand its influence. The people making this argument often point to China’s influence in southeast Asia and in Africa. But all of this has been going on for at least a decade, long before Trump and indeed continued under Trump.
The Asian Infrastructure Investment Bank, which formed in January 2016, the last year of the Obama/Biden administration, was rejected by the US, but nearly all of our allies joined, including France, Germany, Italy, Canada, Australia and the UK.
“We are very mindful that some of our allies and partners have a range of different interests that align with ours and some places where they are somewhat different,” one official reportedly told the WSJ.
In her hearing last week, when asked about working with allies, now as popular a phrase among the Biden administration as diversity and inclusion, likely new USTR Katherine Tai said that “working with allies is really tough. There will be hard discussions ahead.”
The Biden administration is planning for broad-ranging competition with China for global influence, carrying forward the Trump administration’s harder line while also looking for areas to cooperate with China, mainly on issues related to the pandemic and climate change.
Trump’s approach toward Beijing is still supported by many in Congress – even among the free traders who do not like tariffs. Biden administration officials told the WSJ that to go after China better will require leveraging relationships with other countries.
This is also an argument that is used when it comes to supply chains. Rather than reshoring out of China, we are often told to work with allies who make similar products for less. Or, where there is no capacity to build a product overnight in the US, the entire product line is left to be developed elsewhere instead of building it out here for the future.
Early issues to work on with allies and other countries include supply chains of critical goods, something Biden is keeping from the Trump years. Most recently, the US appealed to Taiwan and other countries to deal with a current shortage in semiconductors hitting the auto industry.
“Working with allies makes sense a lot of times, but sometimes it does not,” said Michael Stumo, CEO of CPA. “We have to be mindful about giving them veto power over what should be a serious effort to build a stronger manufacturing base here, one that is less reliant on global supply chains. Europe, Japan and Australia are not interested in reindustrializing America. Germany doesn’t surrender its economic interests to us or others, and neither should we.”