Brussels may not share Washington’s approach to reforming the less capitalist aspects of China’s economy © John Thys/AFP/Getty

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Hello from Washington, where the big news is that Bill Barr, US attorney-general and close ally of Donald Trump, has declared that he has not seen evidence of voter fraud that would affect the outcome of the presidential election.

Meanwhile, we’re still on the lookout for the next US Trade Representative. President-elect Joe Biden has already announced a string of nominations for top economic posts. He wants former Federal Reserve chair Janet Yellen as Treasury secretary. Wally Adeyemo, the president of the Obama Foundation and a former international economic official, is in line to become Yellen’s deputy. Neera Tanden, a former senior aide to Hillary Clinton, will be budget director.

With all that going on, today’s main piece asks whether China can be the unifying force for Europe and the US. Our person in the news is Australia’s trade minister Simon Birmingham.

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The devil is in the detail of any US-EU pact on China

Nothing brings warring parties together like a good villain. Diplomats, particularly American and European diplomats, know this. “If you bicker about certain things, let’s bring in China, or Russia, or whatever bad guys there are,” one told us recently.

Which is exactly what Europe is trying to do with the incoming Biden administration. There’s been talk of the importance of increasing co-operation on China policy from both European capitals and the Biden team for some time now, and the latest iteration of that is the European Commission’s flashy new plan to repair ties with Washington. (The transatlantic relationship, the commission says delicately in the document, is in need of some “maintenance and renewal”).

It’s certainly worth Europe pushing on the White House’s soon-to-be-ajar door. There are clearly areas where the US and Europe can co-operate. Competition from China is a major problem that both sides have. The Biden campaign has said it wants to strengthen co-ordination on screening foreign investments and improve the sharing of intelligence on commercial threats. Parties on both sides of the Atlantic also think there is more to be done to protect emerging technologies with national security implications.

But when it comes to trade policy there is only so far appealing to the sweepier ideas can take you. It’s like when politicians say they like liberty, but then come up with wildly different ideas on what it means and how to achieve it.

For all the talk of co-operation, there may well be some messiness when it comes to the fine print. So where will this messiness emerge?  

For starters, we suspect on tariffs. The US and Europe both want to pressure China into reforming the less capitalist aspects of its economy. But Brussels may not share Washington’s approach of going about it. It’s still unclear exactly what Biden might do here, but Democratic trade folk have talked up the need for Europe to be tougher on China, especially over aluminium and steel overcapacity and dumping. Washington could, therefore, ask Europe to impose more tariffs on Chinese steel and aluminium in return for a removal or weakening of American tariffs on European steel and aluminium. This was a suggested and discarded policy within the Trump White House, and could well be picked up by Biden. Many European states, meanwhile, will want to shy away from too much confrontation with Beijing, a big export partner for countries such as Germany. Nor will anyone want to be seen to be pushed about by Washington.

Another big problem facing both sides is that of the leadership and functioning of the World Trade Organization. If Washington and Brussels want to get serious about curbing China’s more anti-competitive economic practices, then they will need to fix the WTO. The Trump administration has argued that the Geneva-based body is not tough enough on China, but to toughen it up the WTO needs to have a director-general and a working dispute-settlement mechanism. The Biden team, however, has yet to commit to joining with consensus and backing Nigeria’s Ngozi Okonjo-Iweala to take the top job. Democrats on Capitol Hill all seem to think the new administration should take its time and do its own research on the candidates. The European assumption that Biden will sweep in and simply reverse the hold and let everyone move on might, therefore, not be correct. After that, there will need to be a solution on the appellate body, which remains hobbled and broken. 

Then, there’s the yawning gap China has exploited in the decades-long Airbus/Boeing dispute. While the US and Europe have been busy squabbling over subsidies and issuing tariffs and counter tariffs against cheese, wine, whiskey and everything in between, China has developed its own aircraft manufacturing capabilities through the state-owned Commercial Aircraft Corporation. If the US and Europe really want to contain China, ending this dispute between them and moving on is key.

And finally, as we covered last week, there are digital services taxes. This issue is not explicitly to do with China, but is likely to be the premier squabble between the US and Europe over the next few years. And like Airbus/Boeing, it might well distract diplomats and negotiators from their determination to maintain a good relationship.

It makes sense for Europe and the US to collaborate more when trying to come up with a China policy. But the details are tricky and the existing disputes thorny. Bringing in the bad guys might only get Brussels and Washington so far this time around. 

Charted waters

How much damage has the Trump presidency done to trade between China and the US? For all the headlines and rhetoric, it turns out not that much. This chart, based on data from the IMF’s Direction of Trade Statistics, shows that the worsening of relations between the world’s two mightiest economic superpowers has led to falls in the proportion of US imports originating in China and vice versa. The fall has been far from dramatic, however.

Line chart showing the Trump presidency led to some modest trade decoupling between the US and China

Person in the news

Simon Birmingham has suggested that Australia is ready to take a complaint against China to the WTO © Sam Mooy/Getty

Sino-Australian relations have worsened markedly in recent weeks to the point where Simon Birmingham, Australian trade minister, has suggested that Australia is ready to take a complaint against China to the WTO. This comes after Beijing imposed steep tariffs on Australian wine imports. The two sides are embroiled in an escalating trade war, with barley, beef and seafood all targeted by China.

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