How will Joe Biden react to the EU-China deal?

Hi there from Washington, where the post-holiday lull sees the city’s authorities braced for a few more tumultuous days as pro-Trump supporters roll into town. Congress is expected to certify the electoral college results later on Wednesday. Political types — and indeed financial markets — are watching the vote counting for the Georgia senate run-offs, which looks as though it will leave the Democrats in control of the senate.

Our main column looks at what impact the new EU-China investment deal might have on the Biden administration, while our person in the news is Karen Pierce, the UK’s ambassador to the US.

Biden feels snubbed by EU, but may still co-operate

It’s a funny time in Washington DC right now. The lame-duck president is still ostensibly refusing to leave the White House, the mayor of the capital city has enlisted the assistance of the National Guard to help ward off any violence from pro-Trump rightwing groups, and all ten living former defence secretaries have published an unprecedented and slightly spooky letter reminding the Pentagon that carrying out illegal orders and aiding the subversion of democracy will be frowned upon. That’s before we even get to the coronavirus hospitalisation numbers and the new preoccupation with who will get the vaccine and when.

That might make you think trade types in Washington might’ve missed the EU’s unveiling of a long-awaited investment treaty with China, announced in the usually news-lite period between Christmas and New Year (and which Alan Beattie covered in Monday’s edition of Trade Secrets). They did not. The move was seen quite firmly as a snub to the incoming Joe Biden administration, which has pledged to work with Europe on pressuring Beijing to reform its economic and trade practices.

Jake Sullivan, Biden’s incoming national security adviser, put out a general appeal for the brakes to be put on this pact, but his plea went unheeded. At least two top senators — Republican Pat Toomey of Pennsylvania and Democrat Mark Warner of Virginia — also issued a plea for the EU to delay any agreement with China to give the new US administration a chance to weigh in. Crucially, they acknowledged the damage done to the US’s standing in the world by four years of a “go-it alone approach to trade”, which, they said, “diminished domestic economic growth, alienated longstanding allies, and undermined America’s global standing”. That’s a nod to one of Europe’s defences of its deal, which is that the US did not ask Brussels for permission before concluding its own mini-deal with China.

Joe Biden’s team is now likely to be a little less secure in the idea that — with Trump gone — Europe will be glad to work with them on China © Edward M Pio Roda/EPA-EFE/Shutterstock

The pact clearly has geopolitical implications — most foreign-policy watchers see this as a ploy by Chinese leader Xi Jinping to undermine Biden’s efforts for western liberal democracies to face Beijing with a united front. It also hands a prize to China despite its crackdowns on democracy in Hong Kong, its incarcerations of Uighurs in Xinjiang, and its threats to Taiwan. Which possibly bolsters Beijing’s sense that economic relationships with it are so sought after that they are prioritised over human rights issues and other diplomatic concerns. 

So far, so bad. But in practical terms, it is unlikely to change the Biden team’s plan of seeking Europe’s help. Even if they’re irked and frustrated by Europe’s apparent efforts to be as transactional and uncooperative with the new administration as Trump has been with the EU over the past four years. That’s because, when it comes to China, the US needs to co-ordinate with Brussels for its trade policy to be effective.

Take, for example, those elements of trade policy that ultimately serve national security interests, such as export controls on semiconductors. Washington has tried to choke off the supply of US tech to Chinese companies by adding those Chinese companies to its so-called “entity list”. This means US companies would need licences to export anything to companies on the list, threatening to cut off Chinese chipmakers from US software and equipment.

As we’ve written before — without seeking co-operation from Europe on things like this, the US could just end up hurting its own manufacturing interests (an argument the industry’s lobbyists push quite hard) without even meeting its national security ends. In a world of international supply chains, without international co-operation Chinese industry can buy the tech it’s excluded from elsewhere, which does nothing to keep potential military tech out of China’s hands. The US will also be keen to co-ordinate with Europe over applying tariffs on Chinese goods to ward off steel and aluminium dumping, reasoning that a joint approach shared among US allies will apply far more economic pressure on Beijing than a piecemeal one could.

It’s undeniable, though, that this is not a great start for hopes of repairing the transatlantic relationship. As we’ve previously said, there are many upcoming tough issues threatening to disrupt transatlantic harmony. China was supposed to be the big unifying force. So much for that. And as Tom Wright, a Europe expert at the Washington-based Brookings Institution points out, the Biden team is not legally allowed to substantively engage with the EU or any foreign government during a transition period, which means the EU will probably not directly hear of the Biden team’s disgruntlement until later this month. 

So what next? Well, the Biden team will probably proceed as was planned before this all kicked off. But they may be a little more careful, and a little less secure in the idea that — with Trump gone — Europe will be glad to co-operate with them on China, than they were before this pact was signed. 

Person in the news

Karen Pierce says the UK and US will need to collaborate to counter strategic threats emanating from Moscow and Beijing © Christopher Goodney/Bloomberg

Karen Pierce, the UK’s ambassador to the US, is our person in the news this week. Pierce, a career diplomat who took on the role in 2020, gave an interview to Bloomberg Television last week in which she was optimistic about the UK reaching a favourable trade deal with the US.

She also told the broadcaster that the UK and US would need to collaborate to counter strategic threats emanating from Moscow and Beijing. With the news on the EU’s investment treaty with China rankling with trade types in Washington, this might be music to the incoming Biden administration’s ears. The UK has been willing to take a much tougher stance on national security issues involving China, most notably on Huawei, than some of its European counterparts, such as Germany.

Don’t miss

• The food and drink industry has raised serious concerns about the new EU-UK trade deal because businesses face punitive tariffs on goods from the bloc processed at British distribution hubs that are re-exported to member states.
  Read more

• Car companies in Europe and China are using ever more rhodium to meet tougher clean-air legislation, at the same time as supply from South Africa, the biggest producer, has been disrupted by the spread of Covid-19, leading to a dramatic rally in the niche metal.
  Read more

• In light of the crackdown on Alibaba, the Financial Times editorial board cautions that, by being too heavy-handed towards Ant, regulators risk being seen to be targeting the private sector as a whole, as well as the sanctity of private property rights. It would, the piece argues, be a setback for China’s economic development in the longer-term if the private sector were to fall victim to a political drive to entrench the state.
  Read more

Tokyo talk

The best trade stories from Nikkei Asia

• Russia aims to ship 30m tons of coal to China by 2023, doubling exports enough to replace restricted Australian coal.
  Read more

• The EU’s investment agreement with China was at best one-sided, but may push the bloc to a more active approach in Asia, writes James Crabtree. 
  Read more

Source: Economy - ft.com