The first 100 days in power for any new presidential administration is never easy. With US-China relations at arguably their lowest point in 50 years, the administration of US President Joe Biden will have to make some difficult policy decisions that could affect the balance of the world’s two largest economies. How could the relationship evolve over the next four years?

We asked Capital Group political economist Michael Thawley and portfolio manager Chris Thomsen to share their perspectives on potential implications for trade policies and investments.

How much might policy change under the Biden administration?

Michael Thawley: The Biden administration is facing the same problems as the Trump administration, so I don’t expect much change from a geopolitical standpoint. China’s economy is currently the single greatest contributor to global growth and its leaders have grown more self-confident and are seeking a greater voice in world affairs.

I think the overall policy framework will carry over, with a few caveats. I anticipate the existing trade tariffs will remain in place for the foreseeable future. Biden’s team will probably maintain the investment and technology restrictions against China but try to define them more carefully and create more streamlined and predictable processes. This could help certain US technology companies and Wall Street banks that have investments and interests in China.

For example, some of America’s leading semiconductor companies count China among their largest markets for sales. If they are restricted in shipping more advanced chips to China, this could affect their longer-term revenue. Meanwhile, Wall Street banks and asset managers want to make a bigger push into China after Beijing loosened rules to operate in the country.

Elsewhere, coalition-building and mitigating climate change are part of Biden’s global agenda. This is a significant departure from the priorities of the past four years. Another shift might be more targeted sanctions when it comes to China’s policies towards Hong Kong and Taiwan. This is an ongoing risk.

The US has remained an IPO destination for Chinese companies¹

IPOs of Chinese companies on Nasdaq and NYSE

What do you see as potential challenges to this approach?

Thawley: The Biden team will aim to rehabilitate alliances with allies and work more consistently with these other countries on China. While the previous administration was viewed as taking a unilateral approach, Biden will be challenged in forming an international coalition to influence China in hopes of reaching a new equilibrium.  

It won’t be easy to craft policy that allows for mutually beneficial economic cooperation while at the same time limiting the pressure China can put on the US and its allies.

South Korea, Japan and Australia are looking to the United States to help balance China’s power in the Western Pacific. It's complicated, because everyone has huge economic interests in their relationship with China. The US and its allies still want to do business with China and investors want to invest there.

The Biden administration could seek an arrangement with China that acknowledges its importance to the world economy. This could result in fairer economic practices and a level playing field. From my experience working in government, I’ve found that creating and sustaining coalitions behind such a set of common goals can be hard work.

1. Source: FactSet. As of 31 December 2020

 

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