If he is to set the US economy back on the right path, Joe Biden needs to turn away from his predecessor Donald Trump's policies. Image: AFP

US President Joe Biden is applying the same tactics in containing China as his predecessor, Donald Trump. The main difference is that the current White House occupant is asking (pressuring is more likely) allies to join in the fight against the Asian giant whereas Trump acted “alone.”

The folly of ‘Trumpian policies’

But as history will tell, Trump’s ill-advised trade wars exacerbated America’s economic woes without containing China. His tariffs increased production costs and consumer prices, widened the trade deficit (with China), decreased manufacturing activities at home and put farmers at financial risk.

This is because the tariffs were paid by American businesses and consumers. Meanwhile China’s tit-for-tat measures slowed down the import of US agricultural and other products.

The former president’s technology war risked US firms’ financial viability and technological supremacy. China was the biggest customer for US technology firms such as Qualcomm. The huge revenue loss most likely reduced the American firms’ research and development activities.

America’s allies in Asia and Europe are not keen on choosing sides because the majority depend heavily on China for their economic well-being.

No, China’s economy is not collapsing

Instead of China’s economic rise being contained, the country seems to be doing fairly well. It was the only major economy to register positive growth in 2020, largely because of its effective and timely measures in controlling the Covid-19 pandemic. This coupled with effective recovery policies (that is, the dual circulation strategy) prompted the International Monetary Fund and other organizations to predict the Chinese economy will grow by 8.1% in 2021 and around 6% thereafter.

And contrary to what American pundits and politicians claim, China probably has more “friends” than the US in the world, because it is the major trade partner and major investor to more than 125 countries. Simply put, China is responsible for their economic development and prosperity. And unlike the US, China has not invaded or bombed any country.

China is fighting back

More important, China is not sitting idly by but is hitting back against US “wolf warrior diplomacy,” a term usually aimed at Beijing but more accurately describing US diplomatic postures.

On the economic and technology fronts, China is preparing for a reduction in economic relations with or even decoupling from the US. For example, it is expanding trade relations with developing countries through its Belt and Road Initiative. With a population of 1.4 billion and links with billions more in the developing world, the loss of the US market might slow China’s economic growth, but would not collapse it.

Reaching out to the world has produced positive results for the Chinese economy. Case in point is the increase in two-way trade between China and members of the Association of Southeast Asian Nations.

EU-China trade likewise enjoyed a 5% increase in 2020, resulting in China replacing the US as the European Union’s biggest trade partner. Though the European Parliament held back on ratifying the China-EU Agreement on Investment (CAI), some member countries are defying that decision. For example, France and Germany are pushing for its ratification.

Against this backdrop, it might be the US that is being isolated rather than China.

US recovery policies not sustainable

Like Trump, Biden has applied very liberal monetary and fiscal policies to stimulate US economic recovery. Pouring in trillions of dollars to subsidize private consumption did increase consumer confidence and spending.

But the 6.4% and 6.5% growth rates in this year’s first and second quarters respectively are not sustainable. US Federal Reserve quantitative easing and printing trillions of dollars has led to distortions in which demand far exceeded supply.

Increasing demand without a corresponding rise in supply was, at least in part, responsible for the inflationary spiral of more than 5% in June. The inflation rate hammered the stock market. At the same time, US government statistics showed consumption and industrial production were slipping. These revelations prompted many to speculate the emergence of stagflation, a combination of rising inflation and unemployment.

That speculation has legs, because once the government consumption subsidies end, consumer spending will likely fall. The loss in wealth due to the plunge in stock prices would reduce investment. A fall in aggregate private demand would lead to higher unemployment.

Yet inflation might linger because of supply shortages (such as semiconductor chips) in some manufacturing areas. For example, chip shortages have forced automakers to reduce production, prompting an increase in the demand for and rise in the prices of used cars. And the tariffs kept production costs and consumer prices high.

One could indeed argue that blaming China for anything and everything might have been a major contributor to Trump’s failure to gain a second term. The “swing states” that put Trump in the White House abandoned him in 2020 because his policies did not deliver what he promised.

By following Trump’s policy footsteps and often outpacing them, Biden has sunk the US-China relationship further. This has resulted in very little cooperation between the US and China on global issues such as climate change, security and others. But without that cooperation, Biden’s chances of fulfilling his election promises could evaporate.

A case in point is his climate platform. Barring solar panels and parts from Xinjiang on unsubstantiated allegations of “forced labor” might be the main reason there has been no contact on the matter since the April meeting between the two countries.

So no, Biden will not succeed in containing China and fulfilling his election promises where Trump failed. Indeed, Biden might even exacerbate the already toxic relationship because of his “neoconservative” leaning of not allowing any country to challenge US supremacy.

Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China’s Economic Rise and Its Global Impact in 2015. His second book, Developed Nations and the Economic Impact of Globalization, was published by Palgrave McMillan Springer.