Hello and welcome to DEEPER LOOK.

I'm Del Irani, it's great to have your company.

The trade war between US and China is heating up...

President Biden recently announced a range of new tariffs on Chinese products.

For Electric vehicles in particular - the US will raise tariffs from 25 to 100 percent... that's a four-fold increase.

In total, about 18 billion dollars' worth of imports from China are expected to be affected.

China has vowed to respond.

So, what are the implications for US-China relations and the global economy?

And how could these trade policies be affected by the US presidential election?

Well, joining us now to discuss this further is Scott Kennedy.

He's the senior adviser and Trustee Chair in Chinese business and economics

at the Center for Strategic and International Studies.

He's also a leading expert on US-China commercial relations, and he joins us now.

Welcome to the program, Scott Kennedy. Great to have you with us.

Thank you for having me here.

So, Scott, you know, we've seen President Biden's recent announcement on tariffs against Chinese imports,

particularly with the focus on electric vehicles.

What do you make of this?

Well, I think his announcement is both about politics and also about US-China relations and China's economic model.

So certainly, the timing can't be lost on everybody.

This is 2024.

And in even numbered years in the United States, that means it's an election year.

And it's very important for the Biden administration to not look weak on China.

But it's not just politics.

The administration, and many other countries are concerned about China's non-market economy behavior.

And given its scale, when China decides to push into an industry,

and there's not sufficient domestic demand, that supply goes global.

And what we're seeing with electric vehicles, and solar and others,

is the start of a rapid increase in exports, a drop in global prices,

and potential effects on countries around the world and their producers.

The US, Japan, Korea, Europe all have vibrant auto industries.

They all are on the path towards electrification.

But that path could be sideswiped by Chinese practices.

Okay, so Scott, tell me, specifically in terms of the impact it's going to have on US-China trade relations.

So, the scale of the tariffs that the Biden administration announced, are actually relatively small.

Of course, for specific sectors and products, high tariffs, upwards of 100%.

But this accounts for only about $18 billion quite small overall, around 4.2% of US imports from China.

But it is a big signal to China, that the US policy of small-yard, high-fence is that yard is getting a little bit bigger.

For China, again, because the US is not the most important market for these goods right now,

it's not going to massively constrain Chinese exports in the near term.

But it does push other countries and regions including Europe and elsewhere,

to begin thinking or move ahead with their own potential restrictions.

The EU already started last October, investigating electric vehicles and wind.

And we know that other countries don't want to be the last country sitting down in a game of protectionist musical chairs.

So, we're going to see others potentially take measures.

And so, it's not this one act that is vital to the global economy or the US or China.

It's the series of moves that could emanate from this.

So, what do you think that President Biden is thinking?

I mean, what is part of the US strategy here?

I think the Biden administration is trying to stick to a relatively straightforward, but complex playbook.

They want to have a stable relationship with China,

they want to avoid escalation in the economic realm on national security, they want to avoid conflicts.

At the same time, they also want to press China on various things that they are unhappy with,

including its non-market economic practices.

Over the past year, the US and China have stood up over a dozen dialogues, including several on economic issues.

And in March and early April of this year, they met in Washington and in Beijing.

Certainly, the US highlighted the problem of overcapacity, and said that if this does...

if they can't find some amicable solution, the US would have no choice, but to roll out these kinds of tariffs.

And so, I think the announcement the Biden administration made,

the Chinese weren't happy with it, but they weren't surprised by it.

And I think right now, then, people are trying to see, you know, what China might do in response.

So then talk me through China's reaction to President Biden's announcement of these US tariffs.

Do you think their statements reflect that they're taking this seriously?

Or it's not a big, it's not as big a deal as it seems?

I think the Chinese are certainly quite unhappy with this move.

They, I think, at least argue that the expansion of dialogue from the two presidents through the cabinets

and lower levels means that the two sides shouldn't take new, quote unquote, "hostile acts" against the other.

But of course, they're taking steps in other areas that the US doesn't like, as well.

And the Chinese have made variety arguments to the US that suggest

unilateral tariffs aren't a solution to the problem, but will just make things worse.

So, I think what the Chinese are considering doing is a proportional response of some tariffs,

and a few other measures, which will push back on the US and also Europe to impose a similar level of pain.

China still thinks those relationship is salvageable.

That they can continue to have an intense, deep, wide economic relationship with the West.

And so that's their choice.

If they thought the US was going to radically expand tariffs, and essentially declare economic war,

then the Chinese response would be much bigger, much broader.

And it would have a huge effect on the overall relationship.

Now, let's go and talk about the US presidential election year that we are in right now.

Donald Trump has criticized President Biden saying that these new tariffs don't go far enough.

What effect is the fact that we are in a US presidential race right now;

how is that playing out when it comes to these types of trade policies we're seeing towards China?

Sure. Well, I think American domestic politics certainly have an effect on how American political leaders

on both sides of the aisle talk about China.

Everyone wants to make sure that they sound tough.

Not necessarily because of a China specific issue.

But China's now a litmus test for showing whether or not you stand up for American national security and values.

And so, you hear a lot of talk about China.

There are several 100 bills that have been introduced by members of Congress related to China

so that they can prove that they also are tough.

I think you're going to see the Biden administration and the Trump campaign compete for sounding tougher.

I think, actually, if you look at the Biden administration's policies,

they are far more hawkish than anything any previous administration has adopted.

Even relative to a lot of the things that the Trump administration adopted.

Broadly speaking, we are already at the very hawkish end of the spectrum in terms of what the US policy toward China might be.

On Chinese exports before the election.

I mean, what kind of escalation do you anticipate between these US-China trade disputes?

So, it's really hard to predict when there might be new restrictions,

whether they're tariffs or export controls or investment restrictions,

or new kinds of licensing requirements or certification systems.

And that's because these are complex issues.

There's a political calendar, there's also just world events.

And so, I wouldn't be surprised if there are new measures that the Biden administration announces between now and the end of the year.

But I also wouldn't be surprised if we see very little new, because of those combination of factors.

And so, but I don't expect anything radically different from what we've seen so far,

within the framework of what the Biden administration calls small-yard, high fence, and trying to protect American...

the American economy and national security while also interacting extensively with the Chinese.

I think, that I think, we're very likely to continue to see

unless there's some rupture in the Taiwan Strait or some other type of crisis, which we can't predict.

Talk me through, what do you... how do you see US policy changing if former President Donald Trump were to be elected?

Do you think we're gonna see even further tariffs?

And conversely, if we see another four years of the Biden administration.

Based on everything that the Trump administration did in its first term, what we've seen the President,

and those that worked in the administration, say in the intervening years, new reports that have come out from the Heritage Foundation,

other think tanks that seem somewhat aligned with former President Trump.

We should expect an extremely hawkish approach towards China on trade and national security.

I think the administration in 2018, started a trade war with the idea that they would get a deal

and then have relations go back to normal.

And that's what happened with the phase one deal that came out in January of 2020.

But a week later, there was the pandemic, the administration turned in a much harsher direction,

a series of sanctions and actions against China during 2020 with no expectation of negotiations.

I think that's the Trump administration that we most likely see in 2025, if he were to come into office.

Not the Trump, the negotiator, but Trump, the hawk.

If President Biden is reelected, the most likely thing is a continuation of what he's done in the first term.

Again, strategic competition, the market economies against, you know, mercantilist and non-market actions,

trying to defend the liberal international order, but do so in a way that doesn't lead to ruptures

in the relationship of recognizing the US needs to continue to collaborate with allies and others, and in some places work with the Chinese.

How do you see the larger implications of this US-China tariff war in terms of the global trade order?

There's a lot of different outcomes that could emerge from all of these tensions and investigations and penalties.

It could be that as a result of these efforts, China adjusts. It adapts.

Remember, its economy is not doing well.

The level of confidence inside China is quite low.

I was there just recently, and the negativity and malaise that you hear from around the country is quite high.

So, the Chinese might come to the realization that their mercantilist state-led approach is not working,

it's harming them at home and abroad, and they might adjust.

And then we might have an outcome, which would be sort of a more reformed globalization

that addresses everyone's issues, and we go back to a more stable global economy.

On the other hand, China might dig in their heels,

we might see protectionism from a whole variety of different countries, have greater restrictions on dual use technologies.

And then we might either have a fragmented economy

in which trade investment is a much lower percentage of global economic activity than ever before.

Or we might split into blocks.

In which the US and its like-minded countries have deeper economic ties

and China has deeper ties with countries that share greater affinity for it.

So, there's a whole variety of potential outcomes here. None of them are predestined.

Certainly, the more negative ones seem more likely, given the path that we're on.

But political leaders have the opportunity show political leadership,

and companies and others also have an ability to raise their voices and affect the outcome of where we're headed.

Scott Kennedy, that's great to hear.

Thank you so much for your time and for joining us on the program.

Good talking to you.

President Biden's new tariffs on China are likely to have an impact not only on the relations between these two superpowers.

But will undoubtedly have ripple effects on the global economy too.

I'm Del Irani, thanks for your company.

I'll see you next time on DEEPER LOOK.