Is Biden’s China policy at war with itself?

Since the Biden-Xi summit last November, the White House has been seeking a path to halt the tit-for-tat doom spiral of U.S.-China relations from spinning toward conflict. Treasury Secretary Janet Yellen’s speech last week is the latest effort, but in a way, Beijing likely viewed it as a mixed message. 

White House efforts keep bumping up against the realities of the down spiral. Balloongate, the detection of a Chinese spy balloon over the U.S. and the media/Congress spectacle of America being shocked that nations spy on each other, led Secretary of State Antony Blinken to postpone a March China trip. 

Yet, isn’t an international crisis precisely the time diplomacy is most needed, the first line of defense? That episode illuminated the tension between strategic and economic interests and the force of anti-China domestic politics of demonization. Hostility toward China is palpable, with a D.C. atmosphere reminiscent of the fevered Joe McCarthy anti-communism of the 1950s. And in China, a mirror-image nationalism further complicates Biden’s quest for stability. 

But give Biden points for trying: Finding a still elusive modus vivendi with China is a necessary goal. Yellen’s speech aimed to renew a stable, cooperative relationship, accentuating the positive. 

“We do not seek to decouple our economy from China’s, she proclaimed, adding, “A full separation of our economies would be disastrous for both countries. It would be destabilizing for the rest of the world.”  

But a selective decoupling by both sides is, in fact, being pursued. Most dramatically, last October, President Biden imposed an export ban on high-end semiconductors for AI and supercomputers and their chip-making equipment. This effectively chokes off China from the most sophisticated tech that will drive future economic growth. China, for its part, is accelerating efforts for an economically self-sufficient chip industry. 

This reality gets to Yellen’s mixed message. She explained that economic ties to China are filtered through the prism of national security. Ok, as it should be. But she then says of tech bans: “These national security actions are not designed for us to gain a competitive economic advantage or stifle China’s economic and technological modernization.” 

Yet gaining U.S. competitive advantage and stifling China’s tech modernization is exactly what banning top-end AI and supercomputer chips and chip-making equipment is designed to do. And similarly, it’s what U.S. restrictions on Huawei’s 5G telecommunications tech sought to do. 

It may be a good and necessary policy. You can be for it or against it. But it is difficult with a straight face to tell China, in effect, that it’s done for “national security considerations” and not an economic advantage, so that makes it OK. 

Yellen argued that the U.S., “does not seek competition that is winner-take-all.” Instead, she said, “we believe that healthy economic competition with a fair set of rules can benefit both countries over time.” But I suspect many in the European Union and China see U.S. policies, particularly the CHIPS and Science Act and the Inflation Reduction Act (IRA), somewhat differently. 

The CHIPS bill subsidizes U.S. semiconductor manufacturers to lure investment in the U.S. More than $200 billion in private investment — including from foreign firms in Europe and Asia — to build factories in the U.S. has come in. Similarly, the IRA, largely a climate bill, has financial incentives for investment in renewable energy, electric vehicles (EVs) and batteries with “America First” conditions: Most components must come from the U.S. or nations with which the U.S. has a free trade agreement. 

While motivated by economic competition with China, these bills have also irritated allies in Europe and Asia, who may receive only limited benefits available to domestic firms, even if BMW, Honda or Hyundai build auto or factories in the United States. Viewed from Beijing, these policies likely appear to be zero-sum competition. This is despite that China dominates EVs and batteries and the critical rare earth minerals needed for ramping up their production.  

The anti-China mood tends to spill over beyond security interests. When Ford Motors sought to build a battery factory owned by China in the U.S., the governor of Virginia blocked the plan. Do batteries spy? 

The U.S. has a long list of legitimate grievances on Chinese economic misdeeds, from massive state subsidies — lately expanded to growth industries — and intellectual property theft to economic coercion and boycotts violating its World Trade Organization commitments. Yellen expressed the U.S. desire to pursue, “healthy economic competition with a fair set of rules” that “can benefit both countries over time.”  

But her speech and the thrust of U.S. policies have precluded negotiations for rules, and instead, ask China to cooperate on the basis of U.S. policies — like the chip ban. It may be that China wants to pursue its global ambitions and is not willing to seriously negotiate economic rules. But in any case, there is no serious dialogue with China at present on any topic. 

Yellen announced her intention to visit China, the world’s largest exporter of capital and a holder of more than one-third of developing nation debt. Past U.S.-China financial cooperation played a significant role in managing the 2008 global financial crisis. But like Blinken, whose request for a rescheduled visit was declined, Yellen may have difficulty getting an invite in the current climate. 

China has an anti-U.S. mood similar to the toxic climate in the U.S. toward China, which is why neither trip has occurred. Unlike the Cold War, where the U.S. and USSR had separate economic systems, both the U.S. and China are competing in the same system.   

China’s annoyance at the gap between U.S. rhetoric and reality, and U.S. anger at Beijing’s behavior, is fueling another spiral. This is despite Biden’s intentions to build guardrails. The standoff is leading to the fragmentation of that system and an erosion of global trade and financial rules. This may be unavoidable, but both the U.S. and China need to define the terms and limits of competition, or this will not end well.

Robert A. Manning is a distinguished fellow at the Stimson Center. He previously served as senior counselor to the undersecretary of State for global affairs, as a member of the U.S. secretary of state’s policy planning staff and on the National Intelligence Council Strategic Futures Group. Follow him on Twitter @Rmanning4.