The United States sees the rise of authoritarian China as the primary risk to its national security and the global order.
US foreign policy views the economy across party lines as being part of “national security” – especially vis-à-vis China. In its competition with China, the United States is increasingly resorting to coercive economic instruments, some of which can also apply to companies in third countries. These are primarily tariffs, financial sanctions as well as export and investment controls.
Industrial policy, including large-scale subsidies, complements these defensive economic measures.
US allies and economic partners see both coercive economic measures and industrial policy as challenges.
Biden’s customised technology controls (“small yard, high fence” approach) are being met with scepticism concerning their scope, practicability and effectiveness.
Biden’s new industrial policy was seen as a risk to the economic base of the European Union and was introduced at a particularly bad time – when European industry is struggling most with energy price increases and rising production costs.
In this situation, the European Commission has rightly initiated a process to focus on the EU’s own vulnerabilities and to strengthen the coordination of external economic policy decision processes beyond trade policy. Regardless of the outcome of the US presidential election in 2024 – and in order to reduce dependence on an authoritarian China – the European Commission and the governments of the member states should work together with companies to further develop de-risking strategies and to control critical technologies. The Commission’s recently published package of measures on economic security is an important step in this direction.
The next European Commission should set up an Economic Security Council to independently assess issues relevant to the EU’s security and economy and enable faster and better informed decisions by the member states.
Issues and Recommendations
The United States increasingly views the economy as part of its national security, and China is seen as the greatest threat to US national security across party lines. In order to prevent China’s rise to an economically, technologically and ultimately militarily superior power, the United States is prepared to use all available foreign policy tools. Even under President Barack Obama, there was a growing willingness to use coercive economic instruments in the competition with China to achieve technological supremacy. President Donald Trump introduced a whole range of such instruments against China. President Joe Biden held on to them and even sharpened some of them to increase their effectiveness. The US Congress also passed several resolutions and laws to tighten foreign economic policy instruments. Regardless of the outcome of the 2024 presidential election, the next US administration will maintain this course.
Trump was the first US president since Richard Nixon to bring about a 180-degree turnaround in the country’s strategic approach towards Beijing. In the US National Security Strategy (NSS) under Trump, China was declared to be the greatest foreign and security policy threat for the first time. In order to put Beijing in its place, the Trump administration used a trade policy statute from the Cold War that allowed it to take action against the theft of intellectual property with comprehensive tariffs. The tariffs imposed unilaterally by the United States provoked countermeasures and triggered a Sino-American trade conflict. Trump ultimately failed in his attempt to force China to give in and abandon its aggressive trade practices. He also failed to achieve his goal of reducing the US trade deficit in a sustainable way. Other coercive economic instruments, such as export controls, investment restrictions and sanctions, on the other hand, fundamentally changed the course towards China because they made it considerably more difficult for Beijing to access critical technologies. In doing so, Trump actively disregarded the interests of allies and partners and imposed tariffs on them as well. He later forced their companies to take measures against China. They were given a choice to either stop economic exchanges with companies or individuals targeted by US sanctions or lose access to the US market and be cut-off the US-dollar-based financial system. This provoked resistance from US allies, although in some cases their interests coincided with those of Washington.
As president, Biden has continued his predecessor’s strategic course towards China. However, Biden wanted to avoid the mistake of going it alone against America’s main strategic challenger by involving allied states in many decisions from the outset. Unlike in Trump’s NSS, both systemic competition with authoritarian China and cooperation with allies are anchored as priorities in his successor’s NSS. However, Biden’s top priority is the economic stability of the US middle class, not least to strengthen US democracy. All foreign policy measures must be geared towards this.
Biden is linking competition with China with the aim of strengthening the United States’ own economic power and democracy. To this end, the Biden administration has developed and gradually implemented the “Foreign Policy for the Middle Class” strategy. Undoubtedly, Biden has tried to protect US companies from export competition, relying on protectionist measures such as tariffs, even though numerous empirical studies show that these do not help the majority of US workers. He is sticking to import tariffs, which affect around two-thirds of the volume of imports from China – primarily in order to exert further pressure on China in terms of foreign and security policy.
Beyond coercive measures against China, Biden is focusing on advancing the US economy through a new industrial policy. In doing so, Washington is promoting areas in which dependence on other countries, above all China, has increased in recent decades. In addition, the development and production of state-of-the-art technologies is to be relocated to, or expanded in, the United States. In particular, the transfer of critical technologies to China is to be controlled and, if necessary, prevented. As the Biden administration explained, it is pursuing an approach (“small yard, high fence”) focused on individual economic sectors that does not call China’s economic growth into question. It remains to be seen to what extent this narrow approach will continue.
Independent of the 2024 presidential election outcome, the United States is unlikely to change its foreign policy course towards China. Under Trump, the US-China conflict could escalate more easily than under Biden, as there would be even fewer areas left for foreign policy cooperation. Working with China on climate policy would be almost inconceivable because the majority of Republicans reject both. Cooperation on standards for the application of artificial intelligence (AI) would also seem unlikely. Furthermore, under a Republican presidency, important progress on the reform of the World Trade Organization (WTO), such as subsidy rules or dispute settlement, would be virtually impossible.
If Trump were to return to the presidency, the European Union (EU) would once again be under pressure to comply with his demands – primarily because it is still dependent on the United States for security policy. Germany would be particularly vulnerable to Trump’s threats, such as tariffs on cars, due to the importance of the United States as an export market. It is clear that Trump would be prepared to link security guarantees with economic quid pro quos in order to advance his interests. As evidenced during his 2017–2021 presidency, attempts by individual countries to get permanent “good deals” in bilateral negotiations with Trump are usually fruitless. Making him aware of the raw economic costs of doing so may be the only way to prevent him from pulling out of Europe militarily. Investments in the United States and the economic involvement of US companies in the EU are therefore also central to alliance security. Berlin and Brussels should take this geopolitical factor into account when making decisions on industrial and investment promotion, including subsidies. The European response to Trump’s return should not be “more investment from and into China”.
Even in the event of a continued Democratic presidency, the demands from the US Congress and the public to take a firm economic stand towards Beijing are unlikely to abate. The EU and Germany must be prepared for Washington to expect more involvement from them in coercive measures against China. In order to better assess threats to the EU’s security and swiftly implement joint measures, the next European Commission should establish an Economic Security Council. At the same time, the German government should continue to support the EU’s course and not isolate itself by unilaterally pursuing German interests that contradict the positions of other member states. However, Germany should use its influence with other EU members to conclude important, long-term trade agreements as quickly as possible, thus underpinning the “openness” in the EU’s “open strategic autonomy”.
America First, Protectionism and Security Policy Realignment under Trump
Trump has frequently been described as an erratic president.1 Critics have often based this assessment on his trade policy. This impression was underlined by the never-ending succession of threats to impose tariffs, the withdrawal of threats, the introduction of tariffs, the suspension of tariffs, and the large number of exemptions and special regulations for individual companies. Trump, who described himself as a “tariff man”, publicly declared the reduction of trade deficits to be a top priority but remained far from achieving it. However, a closer look also reveals the extent to which the Trump administration embedded its trade policy in a foreign trade policy that was primarily geared towards the foreign and security policy goal of preventing China from becoming a super power. Under President Obama, US foreign policy had already begun to see China not only as an economic competitor, but also as a military rival for the first time. There is a great deal of continuity in this respect under President Biden.
The Trump administration took a new hard line against Beijing using a whole range of economic and diplomatic instruments.
The Trump administration took a new hard line against Beijing with a whole range of economic and diplomatic instruments. The NSS published in December 2017 identified China as the biggest geopolitical challenger, followed by Russia. In its NSS, the US government declared China to be a “revisionist power” and accused the country of undermining the international order.2 Trump’s trade policy advisor Peter Navarro stated in a frequently quoted speech to major US companies: “Economic security is national security”.3 In the president’s annually published trade strategies, the US Trade Representative and the White House made reference to the security threat posed by China’s aggressive economic and trade policy from 2017 onwards, which made countermeasures necessary.
As the academic literature on economic interdependence and the use of coercive instruments (economic statecraft) emphasises, one of the foreign and security policy priorities for the United States as a global power is to prevent or eliminate economic and technological dependencies on individual states. This applies in particular to a competitor and potential military rival such as China and concerns strategic areas such as communications technology.4 As argued in the economic statecraft literature, the United States can exclude strategic rivals when it controls access to an important network, such as in the global financial system (choke point effect). In this way, Washington secures a position of relative supremacy.5 The Trump administration openly and almost unreservedly used all available economic control instruments to expand US dominance in global networks, particularly vis-à-vis China, and to assert US interests. Both the Republicans and the Democrats supported the new course. This was reflected in several pieces of legislation that received bipartisan support in Congress. They concerned, for example, the rules of the Buy American Act (BAA), new export regulations and investment screening.
However, Trump’s aggressive economic policy did not stop at the interests of his own allies and close trading partners. In doing so, he damaged the United States’ foreign policy credibility beyond his presidency. In spring 2018, he imposed import tariffs on steel and aluminium, justifying them by citing a “threat to national security”. This was the first time a US government had declared that imports from close partners and allies also posed a threat to the United States. The Trump administration also dealt the WTO a blow from which it has still not recovered. The unilaterally imposed tariffs were a decisive overstepping of the bounds, as a “threat to national security” is only envisaged as a last resort under WTO rules. It is almost impossible for injured countries to provide evidence to the contrary and defend themselves against the tariffs. Subsequently, Washington blocked the reappointment of judges to the WTO Appellate Body, thus paralysing its dispute settlement mechanism.6
Overview of the trade policy instruments
During the election campaign, Trump declared that US trade deficits were a symptom of political weakness and made promises to impose tariffs. In the first trade strategy (The President’s Trade Agenda) of March 2017, the Trump administration signalled that it would use comprehensive trade instruments that went far beyond typical anti-dumping and the usual countervailing duties. A key objective in the document appeared to be the fight against trade deficits, paving the way for unilateral tariffs, even at the expense of allies and close partners. However, the focus of the Trade Agenda was on measures against China.
Section 201 duties (temporary relief)
In February 2018, the Trump administration introduced new safeguard remedies on imports of solar panels and household washing machines from China and other countries for the first time. These tariffs were based on Section 201 of the US Trade Act of 1974. Overall, the volume of trade affected remained manageable. What was remarkable was the legal basis, which indicated a more aggressive course. Section 201 of the Trade Act allows Washington to protect US companies that come under so much competitive pressure due to increased imports that they are threatened with market exit. Companies can complain to the US International Trade Commission (ITC) about competitors. After review, the ITC can recommend tariffs or other measures to the president without having to submit a comprehensive report. Protective tariffs based on Section 201 are in line with WTO rules as long as they are imposed for a limited period of time – as in these cases for either three or four years.
The affected trading partners reacted with incomprehension but were unable to agree on a coordinated position, let alone a response. Taiwan and South Korea were the first countries to file a complaint with the WTO against the US tariff decision in January 2018. In response, China imposed its own tariffs on sorghum imports from the United States and also filed a complaint with the WTO. The EU declared its intention to respond “firmly and proportionately” to the US tariffs. In the end, Brussels filed a complaint with the WTO but refrained from taking its own tariff measures.7 In retrospect, the Section 201 tariffs appeared to be a “test balloon” for the responses of trading partners to protectionist US tariffs.
About the author:
Dr Laura von Daniels is Head of The Americas Division at SWP.