Investment Strategy
What would a path for a more positive U.S.-China relationship look like?
Compared with President Trump, Joe Biden is almost certainly going to be more orthodox in his approach to foreign affairs, which could help improve communication and lower policy uncertainty.
While it’s impossible to know exactly how ties between Beijing and Washington will unfold under the president-elect, in this video we have laid out the key policy decisions and the possible paths during the coming period.
Can the two sides come to some kind of mutual understanding - and ‘lower the heat’?
This short video explainer features Alex Wolf, former U.S. State Department official and Head of Investment Strategy for Asia at J.P. Morgan Private Bank.
One of the most widely held assumptions about a Biden presidency is that it will bring about a normalization of U.S. foreign policy.
Our base case is that Biden is unlikely to propose a fundamental re-evaluation of U.S.-China relations that alters the current trajectory. As a result, we are not assuming any removal of bilateral tariffs, or rollback of export bans.
However, compared with Trump, Biden is almost certainly going to be more orthodox in his approach to foreign affairs which could help improve communication and lower policy uncertainty.
At this point we don’t have the answers but we want to lay out the key policy decisions and the possible paths that will give us an indication of what to expect.
While we acknowledge it’s a two-way street, decisions in Beijing are as impactful as decisions in Washington, in this video we are looking primarily at changes we might see under the new U.S. administration, here we think there are three areas to consider:
First, indications around how the Biden administration will approach trade policy.
A positive path would see Biden rolling back existing tariffs put in place by the Trump administration. This could occur purely as a way to boost the economic recovery, particularly for those sectors most affected, or through possible future negotiations on issues like intellectual property or market access. There are good economic reasons for cancelling tariffs: they cost US consumers as well as hurt farmers, but politically such an action could be difficult.
On the other hand, a more disappointing outcome would be if Biden adopts a more aggressive message on trade by explicitly keeping tariff as one of the preferred ‘policy tools’ vis-à-vis China. Even in the absence of a more aggressive tone, the incoming Biden administration could take a more ambiguous stance by only dropping tariffs on other countries such as Japan, Germany and Canada, arguing that the more important task is to work with allies. This sends a positive message on multilateralism but tells us little about the policy stance towards China.
Second, we will need to see if under a Biden presidency, China and the U.S. can adopt an understanding of the global economy that is less zero-sum, and allows for co-operation outside of clearly defined sensitive areas. Outside of tariffs, another key decision facing the incoming administration is how to handle non-tariff barriers, specifically around technology, export controls, and financial flows.
Many of these measures are the result of a delicate balancing of economic and security interests. While both China and the U.S. should have their respective definition of what is ‘sensitive’, an increasing number of sectors, products and technologies have been caught in the crosshairs over the last few years. The incoming administration faces decisions on how to handle companies placed on the “entity list”, how to handle the exports of “emerging” or “foundational” technologies, and determine whether there are compromises around the bipartisan shift towards restricting domestic investment in Chinese securities.
In the past four years, the pendulum has swung towards security interests; a rebalancing taking into account economic and business priorities would send a signal that some economic integration is possible and security interests are going to be more clearly defined.
To avert a ‘race to the bottom’, both sides will have to resist the temptation to paint ‘de-coupling’ as the ‘easy solution’ to their respective concerns. It is admittedly hard, especially as attitudes have inevitably hardened and mistrust has grown over the last few years. One way where we could be surprised on the downside, is if Biden explicitly endorses a view of ‘economic de-coupling’, or pushes for more sweeping restrictions in terms of exports, investment, and financial flows, outside of reasonable concerns for national security.
A more ambiguous, but no less likely, outcome would be a Biden administration that largely keeps existing restrictions in place, but instead focuses on domestic industrial policy with a stance that’s less focused on slowing China down but more focused on accelerating domestic development.
Lastly, we will wait to see if the two sides can come to some kind of mutual understanding to lower the ‘heat’. One way to do that would be to resume regular dialogue. As the bilateral relationship plummeted over the last few years, regular dialogues have suffered – virtually all of the 100 or so official dialogue mechanisms have been closed over the past four years. This has led to misunderstanding and increased the volatility of the relationship.
A commitment by both sides to communicate more effectively and reduce tensions will help to lower the probability of miscalculation, policy shocks and tail risk events. A positive outcome would be if the two sides re-start communication as soon as feasible. A longer delay, on the other hand, will likely be a missed opportunity and suggest that both sides are digging in, rather than trying to resolve differences. One of the most widely held assumptions about a Biden presidency is that it will bring about a normalization of U.S. foreign policy.
Our base case is that Biden is unlikely to propose a fundamental re-evaluation of U.S.-China relations that alters the current trajectory. As a result, we are not assuming any removal of bilateral tariffs, or rollback of export bans.
However, compared with Trump, Biden is almost certainly going to be more orthodox in his approach to foreign affairs which could help improve communication and lower policy uncertainty.
At this point we don’t have the answers but we want to lay out the key policy decisions and the possible paths that will give us an indication of what to expect.
While we acknowledge it’s a two-way street, decisions in Beijing are as impactful as decisions in Washington, in this video we are looking primarily at changes we might see under the new U.S. administration, here we think there are three areas to consider:
First, indications around how the Biden administration will approach trade policy.
A positive path would see Biden rolling back existing tariffs put in place by the Trump administration. This could occur purely as a way to boost the economic recovery, particularly for those sectors most affected, or through possible future negotiations on issues like intellectual property or market access. There are good economic reasons for cancelling tariffs: they cost US consumers as well as hurt farmers, but politically such an action could be difficult.
On the other hand, a more disappointing outcome would be if Biden adopts a more aggressive message on trade by explicitly keeping tariff as one of the preferred ‘policy tools’ vis-à-vis China. Even in the absence of a more aggressive tone, the incoming Biden administration could take a more ambiguous stance by only dropping tariffs on other countries such as Japan, Germany and Canada, arguing that the more important task is to work with allies. This sends a positive message on multilateralism but tells us little about the policy stance towards China.
Second, we will need to see if under a Biden presidency, China and the U.S. can adopt an understanding of the global economy that is less zero-sum, and allows for co-operation outside of clearly defined sensitive areas. Outside of tariffs, another key decision facing the incoming administration is how to handle non-tariff barriers, specifically around technology, export controls, and financial flows.
Many of these measures are the result of a delicate balancing of economic and security interests. While both China and the U.S. should have their respective definition of what is ‘sensitive’, an increasing number of sectors, products and technologies have been caught in the crosshairs over the last few years. The incoming administration faces decisions on how to handle companies placed on the “entity list”, how to handle the exports of “emerging” or “foundational” technologies, and determine whether there are compromises around the bipartisan shift towards restricting domestic investment in Chinese securities.
In the past four years, the pendulum has swung towards security interests; a rebalancing taking into account economic and business priorities would send a signal that some economic integration is possible and security interests are going to be more clearly defined.
To avert a ‘race to the bottom’, both sides will have to resist the temptation to paint ‘de-coupling’ as the ‘easy solution’ to their respective concerns. It is admittedly hard, especially as attitudes have inevitably hardened and mistrust has grown over the last few years. One way where we could be surprised on the downside, is if Biden explicitly endorses a view of ‘economic de-coupling’, or pushes for more sweeping restrictions in terms of exports, investment, and financial flows, outside of reasonable concerns for national security.
A more ambiguous, but no less likely, outcome would be a Biden administration that largely keeps existing restrictions in place, but instead focuses on domestic industrial policy with a stance that’s less focused on slowing China down but more focused on accelerating domestic development.
Lastly, we will wait to see if the two sides can come to some kind of mutual understanding to lower the ‘heat’. One way to do that would be to resume regular dialogue. As the bilateral relationship plummeted over the last few years, regular dialogues have suffered – virtually all of the 100 or so official dialogue mechanisms have been closed over the past four years. This has led to misunderstanding and increased the volatility of the relationship.
A commitment by both sides to communicate more effectively and reduce tensions will help to lower the probability of miscalculation, policy shocks and tail risk events. A positive outcome would be if the two sides re-start communication as soon as feasible. A longer delay, on the other hand, will likely be a missed opportunity and suggest that both sides are digging in, rather than trying to resolve differences.
Our base case is that Biden is unlikely to propose a fundamental re-evaluation of U.S.-China relations that alters the current trajectory. As a result, we are not assuming any removal of bilateral tariffs, or rollback of export bans.
However, compared with Trump, Biden is almost certainly going to be more orthodox in his approach to foreign affairs which could help improve communication and lower policy uncertainty.
At this point we don’t have the answers but we want to lay out the key policy decisions and the possible paths that will give us an indication of what to expect.
While we acknowledge it’s a two-way street, decisions in Beijing are as impactful as decisions in Washington, in this video we are looking primarily at changes we might see under the new U.S. administration, here we think there are three areas to consider:
First, indications around how the Biden administration will approach trade policy.
A positive path would see Biden rolling back existing tariffs put in place by the Trump administration. This could occur purely as a way to boost the economic recovery, particularly for those sectors most affected, or through possible future negotiations on issues like intellectual property or market access. There are good economic reasons for cancelling tariffs: they cost US consumers as well as hurt farmers, but politically such an action could be difficult.
On the other hand, a more disappointing outcome would be if Biden adopts a more aggressive message on trade by explicitly keeping tariff as one of the preferred ‘policy tools’ vis-à-vis China. Even in the absence of a more aggressive tone, the incoming Biden administration could take a more ambiguous stance by only dropping tariffs on other countries such as Japan, Germany and Canada, arguing that the more important task is to work with allies. This sends a positive message on multilateralism but tells us little about the policy stance towards China.
Second, we will need to see if under a Biden presidency, China and the U.S. can adopt an understanding of the global economy that is less zero-sum, and allows for co-operation outside of clearly defined sensitive areas. Outside of tariffs, another key decision facing the incoming administration is how to handle non-tariff barriers, specifically around technology, export controls, and financial flows.
Many of these measures are the result of a delicate balancing of economic and security interests. While both China and the U.S. should have their respective definition of what is ‘sensitive’, an increasing number of sectors, products and technologies have been caught in the crosshairs over the last few years. The incoming administration faces decisions on how to handle companies placed on the “entity list”, how to handle the exports of “emerging” or “foundational” technologies, and determine whether there are compromises around the bipartisan shift towards restricting domestic investment in Chinese securities.
In the past four years, the pendulum has swung towards security interests; a rebalancing taking into account economic and business priorities would send a signal that some economic integration is possible and security interests are going to be more clearly defined.
To avert a ‘race to the bottom’, both sides will have to resist the temptation to paint ‘de-coupling’ as the ‘easy solution’ to their respective concerns. It is admittedly hard, especially as attitudes have inevitably hardened and mistrust has grown over the last few years. One way where we could be surprised on the downside, is if Biden explicitly endorses a view of ‘economic de-coupling’, or pushes for more sweeping restrictions in terms of exports, investment, and financial flows, outside of reasonable concerns for national security.
A more ambiguous, but no less likely, outcome would be a Biden administration that largely keeps existing restrictions in place, but instead focuses on domestic industrial policy with a stance that’s less focused on slowing China down but more focused on accelerating domestic development.
Lastly, we will wait to see if the two sides can come to some kind of mutual understanding to lower the ‘heat’. One way to do that would be to resume regular dialogue. As the bilateral relationship plummeted over the last few years, regular dialogues have suffered – virtually all of the 100 or so official dialogue mechanisms have been closed over the past four years. This has led to misunderstanding and increased the volatility of the relationship.
A commitment by both sides to communicate more effectively and reduce tensions will help to lower the probability of miscalculation, policy shocks and tail risk events. A positive outcome would be if the two sides re-start communication as soon as feasible. A longer delay, on the other hand, will likely be a missed opportunity and suggest that both sides are digging in, rather than trying to resolve differences. One of the most widely held assumptions about a Biden presidency is that it will bring about a normalization of U.S. foreign policy.
Our base case is that Biden is unlikely to propose a fundamental re-evaluation of U.S.-China relations that alters the current trajectory. As a result, we are not assuming any removal of bilateral tariffs, or rollback of export bans.
However, compared with Trump, Biden is almost certainly going to be more orthodox in his approach to foreign affairs which could help improve communication and lower policy uncertainty.
At this point we don’t have the answers but we want to lay out the key policy decisions and the possible paths that will give us an indication of what to expect.
While we acknowledge it’s a two-way street, decisions in Beijing are as impactful as decisions in Washington, in this video we are looking primarily at changes we might see under the new U.S. administration, here we think there are three areas to consider:
First, indications around how the Biden administration will approach trade policy.
A positive path would see Biden rolling back existing tariffs put in place by the Trump administration. This could occur purely as a way to boost the economic recovery, particularly for those sectors most affected, or through possible future negotiations on issues like intellectual property or market access. There are good economic reasons for cancelling tariffs: they cost US consumers as well as hurt farmers, but politically such an action could be difficult.
On the other hand, a more disappointing outcome would be if Biden adopts a more aggressive message on trade by explicitly keeping tariff as one of the preferred ‘policy tools’ vis-à-vis China. Even in the absence of a more aggressive tone, the incoming Biden administration could take a more ambiguous stance by only dropping tariffs on other countries such as Japan, Germany and Canada, arguing that the more important task is to work with allies. This sends a positive message on multilateralism but tells us little about the policy stance towards China.
Second, we will need to see if under a Biden presidency, China and the U.S. can adopt an understanding of the global economy that is less zero-sum, and allows for co-operation outside of clearly defined sensitive areas. Outside of tariffs, another key decision facing the incoming administration is how to handle non-tariff barriers, specifically around technology, export controls, and financial flows.
Many of these measures are the result of a delicate balancing of economic and security interests. While both China and the U.S. should have their respective definition of what is ‘sensitive’, an increasing number of sectors, products and technologies have been caught in the crosshairs over the last few years. The incoming administration faces decisions on how to handle companies placed on the “entity list”, how to handle the exports of “emerging” or “foundational” technologies, and determine whether there are compromises around the bipartisan shift towards restricting domestic investment in Chinese securities.
In the past four years, the pendulum has swung towards security interests; a rebalancing taking into account economic and business priorities would send a signal that some economic integration is possible and security interests are going to be more clearly defined.
To avert a ‘race to the bottom’, both sides will have to resist the temptation to paint ‘de-coupling’ as the ‘easy solution’ to their respective concerns. It is admittedly hard, especially as attitudes have inevitably hardened and mistrust has grown over the last few years. One way where we could be surprised on the downside, is if Biden explicitly endorses a view of ‘economic de-coupling’, or pushes for more sweeping restrictions in terms of exports, investment, and financial flows, outside of reasonable concerns for national security.
A more ambiguous, but no less likely, outcome would be a Biden administration that largely keeps existing restrictions in place, but instead focuses on domestic industrial policy with a stance that’s less focused on slowing China down but more focused on accelerating domestic development.
Lastly, we will wait to see if the two sides can come to some kind of mutual understanding to lower the ‘heat’. One way to do that would be to resume regular dialogue. As the bilateral relationship plummeted over the last few years, regular dialogues have suffered – virtually all of the 100 or so official dialogue mechanisms have been closed over the past four years. This has led to misunderstanding and increased the volatility of the relationship.
A commitment by both sides to communicate more effectively and reduce tensions will help to lower the probability of miscalculation, policy shocks and tail risk events. A positive outcome would be if the two sides re-start communication as soon as feasible. A longer delay, on the other hand, will likely be a missed opportunity and suggest that both sides are digging in, rather than trying to resolve differences.
