On the heels of Moderna and Pfizer, two other pharmaceutical companies, Johnson & Johnson is also mass-producing vaccines that are being delivered to all parts of the US. The progress that has been made so far means that it is possible for the US to be generally vaccinated by the end of May. Herd immunity will be achieved, and the pandemic will be brought under control. The non-partisan Congressional Budget Office is optimistic that the US economy will recover in July, earlier than previously predicted, and annual GDP growth can reach 3.7%. In February 379,000 jobs were added, beating the estimate of 210,000. The figure is even more important than the unemployment rate falling to 6.2%. Additionally, President Joe Biden’s revised coronavirus relief package of US$1.9 trillion has been passed by the Senate.

The “trade policy for the middle class” that President Biden has emphasized will be under the spotlight only after those industries hit by the pandemic gradually return to normal. Biden has repeatedly stressed the need to rebuild the national strength of the US and join its allies in tackling China. Many countries’ expectations are high in this regard, and they are actively looking for opportunities.

The US’s policy towards technological trade with China is of the utmost importance in its foreign policy. A trade war is like a traditional war; one must know the enemy and oneself. The US now has well-thought-out contingency plans for two possible weapons wielded by China, namely rare earths and US Treasury bonds. Rare earths, from which 17 elements can be extracted, are essential for many types of high-tech equipment, electric vehicles and cutting-edge weapons. Although China held 98% of the world’s rare earths in 2010, it slashed the export quota by 40% in the same year, which President Obama said was a warning sign. After that, the US, Japan, and the EU filed a joint complaint with the World Trade Organization (WTO). China had no choice but to concede defeat.

The US, on the other hand, has made a lot of preparations. It has found alternatives to or sources for 94% of its demand for rare earths. By 2020, the percentage that rare earths from China comprised of the world total had fallen to 58%. At the height of the trade war, Chinese leader Xi Jinping even visited a rare earth refinery in Jiangxi Province on a tour of inspection, which received widespread media coverage. If Xi was trying to warn the US about its dependence on China’s rare earth supplies, the US can tell him that the time to play the rare earths card is gone.

Nearly one-third of China’s foreign exchange reserves are US Treasury bonds. Some commentators argue that the US has no choice but to kowtow to the biggest investor in its national bonds. Back in the Obama era, some conservative Americans felt uncomfortable when Obama greeted Chinese leaders with an Eastern bow and handshakes. However, although the US’s national debts have kept increasing, it would be ridiculous for China to retaliate by dumping US Treasury bonds and disrupting its own financial markets.

The six major global central banks (the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank) reached an agreement several years ago that they must support one another. Whenever there are signs of abnormal international financial flows in any of these countries that may disrupt the financial order, the other five central banks must offer their utmost assistance. Therefore, even if China sold all the US debts held by the People’s Bank of China, it would not affect the stability of the US’s financial markets. Furthermore, Janet Yellen, the incumbent Treasury Secretary, served as the Chairwoman of the Federal Reserve four years ago. She would handle the situation with ease should China dump US bonds.

The US and China signed the phase one trade deal in January 2020. As of today, China has fulfilled just 40% of the increase in US imports it has committed to. For this reason, the tariffs imposed on China will not be lifted soon. Moreover, China has imposed a tariff of 20.7% on US products, while the US’s tariff on China is only 19.3%. It is not because Biden is following what Donald Trump did, but because he needs to keep the bargaining chips for the resumption of trade talks. As for the restrictions on exports, with such a highly charged political atmosphere of rising techno-nationalism and fierce high-tech competition, the restrictions on exports to China will not be lifted in the near future either. It is certain that some people are concerned that the controls on the technological exports may further accelerate China’s pursuit of technological autonomy, so it is better not to overdo it.

According to a survey of the managers of major companies conducted by the Brooklyn Institute, 34% of them believe that China’s pursuit of technological autonomy might bring the country to the same level as the US, Germany, Japan, and South Korea, while 47% believe that China is likely to achieve autonomy in certain core technological areas in 2035. As for the global competition in science and technology in the next ten years, 42% think that the third-party market outside of the US and China will be dominated by two powers. 25% of managers believe that the US and China will fight cold wars in different markets. That was the reason why Biden signed an administrative order on technological autonomy.

Biden’s economic and trade policies towards China will be restrained by the manufactures of these technologies to a considerable extent. Therefore, there will not be the extreme and complete decoupling, but a pragmatic and selective one. In this term of Congress, the Democratic Party’s majority in the House of Representatives is not as big as in the last term. In the Senate, in which the two parties have 50 seats each, the vice president can cast her tie-breaking vote to pass a bill if necessary. However, that is possible only for a moderate policy that can be unanimously supported by the 50 Democratic senators, who cover a wide political spectrum. After all, in a country with flexible party politics, voting against one’s one party is not a disciplinary issue.

Many scholars believe that, as the party in government will suffer a defeat in midterm elections, the Biden administration must promote climate change and infrastructural legislation as soon as possible in order to allocate up to US$2 to 4 trillion of the budget to swing states and gain the support of lawmakers from both parties. Only by doing so can the Biden administration win more seats in the mid-term elections of 2022 and possibly deal with foreign trade negotiations. Especially in some rusty areas, which have been affected by globalization, some of the disgruntled voters have been misled by populist politicians into comparing Free Trade Agreements (FTAs) to Bin Laden. One has to be very convincing in order to persuade lawmakers from those constituencies to support any form of a trade agreement.

It can thus be predicted that Biden will strengthen and repair its relations with allies in the future, but will not rush to sign any FTAs – including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership CPTPP), which some Asian countries have been looking forward to. These Asian countries can only keep on waiting patiently. However, Biden will reach cooperative agreements with trusted allies and partners on high-tech cooperation such as Internet of Things (Iots), artificial intelligence, 5G, cloud technology, and digital trade outside the scope of WTO regulations. Taiwan has mastered the high-end technology of chips, a product whose status in this era of the digital economy has been compared to the oil in the past. Therefore, we can be optimistic about the prospect of Taiwan and the US strengthening their relations, forming alliances and reaching a digital trade agreement.

(Peter Chow, Professor of Department of Economics and Business, the City College of New York, USA)

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