The Biden administration will probably maintain many of the existing U.S. tariffs on China, ushering in a lengthy period of restrictions that will likely prompt businesses to consider shifting their supply chains and operations outside China. While President-elect Joe Biden says he intends to review the tariffs U.S. President Donald Trump placed on China, he has said he will not make any "immediate moves" regarding them. Nevertheless, as the phase one trade deal between the U.S. and China winds down and concludes in 2021 and China continues to remain far behind committed levels of purchases, the Biden administration is not likely to add significantly more tariffs on China to those already existing.

The United States is likely to shore up its China trade policy by seeking some alignment in trade policy via World Trade Organization reform, partnering with countries including Japan, the European Union, the United Kingdom, South Korea and Australia. But such reforms will take time, and require consensus that China can effectively block. The Biden administration could use existing tariffs as collective leverage against China while encouraging like-minded allies to join a multilateral effort for WTO reforms. A strategy in which both the European Union and the United States advocate changes to both WTO rules for developing countries, as well as some of the rules related to industrial subsidies and state-owned enterprises (SOEs), could blunt Chinese efforts to skirt existing WTO rules. Such a strategy, however, would take time, as WTO reform has become increasingly difficult. The Doha Round of trade negotiations, for example, lasted some 14 years before effectively ending in failure. 

• WTO reform must be sanctioned through member consensus, effectively giving China veto power. Other mixed economies and developing countries would also oppose many U.S. and European proposals against China.
• In 2020, the United States significantly expanded its actions against Chinese tech companies by widening export controls on Huawei and SMIC, China's largest semiconductor manufacturer. 
• Leaks on China's next Five-Year Plan, which was approved in October, indicate that financial support for chip manufacturers and the tech sector are an integral component of its economic strategy document. 

The Biden administration will probably consider direct negotiations with China as the phase one trade deal ends in 2021. Any significant pullback of sanctions is unlikely, as Washington will also be under pressure to address Beijing's failure to honor its phase one commitments relating to increased imports from the United States. The Biden administration will focus on structural reform, such as stripping direct support for Chinese SOEs, which China is likely to continue to reject. If the Biden administration maintains such demands for an extended period, negotiations will stall until the United States focuses on China's commitments to purchase more U.S. goods. Additionally, any trade deal that results in a lower value of committed purchases than the deal that Trump negotiated will be politically unpalatable in the United States. China, however, will be willing to sign a trade deal that includes expanded commitments on purchases as a way to string along negotiations and reduce diplomatic tensions ahead of the 2022 Winter Olympics in Beijing and the 100th anniversary of the founding of the Communist Party of China. In a best-case scenario, the United States and China could roll over the trade deal and the United States could perhaps slightly relax some of the tariffs on China. But it is unlikely to secure the kinds of reforms necessary to fully lift tariffs. 

• Under the phase one trade deal, China promised to increase imports of U.S. goods by a combined $200 billion over 2017 levels in 2020 and 2021. 
• Through October 2020, China imported $75.5 billion worth of U.S. goods this year, less than half of the $173 billion worth of U.S. goods China was expected to import in 2020.
• Under the deal, China agreed to specific commitments in agricultural, energy and manufactured goods purchases — and it is behind schedule on purchases of all of them. 

Because China tariffs are likely to remain politically difficult to remove, businesses in many sectors are beginning to look at long-term strategies to manage their impact, investing outside China while also exploring options to shift production operations outside China. Industries that have relatively low costs of final assembly and packaging and low upfront investment costs in building new manufacturing plants, such as in textiles, would probably be prime candidates to move operations out of China and into neighboring countries like Vietnam. The more apparent it becomes that the tariffs will be long-lasting, the more likely that industries with larger costs of moving production will start to shift business operations.

• Southeast Asia continues to be the primary beneficiary of any manufacturers looking to leave or diversify away from China; they do not have to face tariffs that can reach 25 percent on most goods from China.
• The textile, automotive, chemicals and machinery industries were the most impacted as the Trump administration’s tariffs focused the most heavily on intermediate goods, not consumer goods. 
• Consumer goods including electronics are likely to be less affected by the trade war itself, as the Trump administration did not include consumer goods as frequently and electronics were largely spared from tariffs. That said, the electronics industry will be more significantly affected by the tech policy the Biden administration will likely maintain that restricts foreign companies’ ability to sell goods to certain Chinese companies. 

The Fate of Trump’s China Tariffs Under Biden is republished with the permission of Stratfor Worldview, a geopolitical forecasting and intelligence publication from RANE, the Risk Assistance Network + Exchange. As the world's leading geopolitical intelligence platform, Stratfor Worldview brings global events into valuable perspective, empowering businesses, governments and individuals to more confidently navigate their way through an increasingly complex international environment. Stratfor is a RANE (Risk Assistance Network + Exchange) company.

Image: Reuters.