Key Takeaways:
US and Chinese commerce officials met on September 7th in Tianjin to discuss various topics affecting the US-China commercial relationship.
These talks underscored a mutual interest in stabilising trade relations despite ongoing tensions. Both sides made significant progress in critical sectors such as climate and healthcare, offering opportunities for US companies in these industries to begin or expand business operations in China.
China raised concerns over the US' tariff hikes on EVs, semiconductors and critical materials. The US maintained its position, deeming it an issue of national security while reinforcing its interest in civil trade relations.
With the US presidential elections approaching and China facing economic pressures, further escalation of trade tensions or military conflict is unlikely for the remainder of 2024.
August-September Diplomacy:
On September 7th, a commerce dialogue at vice-ministerial level took place between the United States and China after an initial meeting in April. China's commerce vice minister Wang Shouwen co-chaired the meeting with the US Undersecretary of Commerce for international trade, Marisa Lago. This meeting was the third of its kind in a new round of communication between the two countries following talks between the US's Department of the Treasury and the People's Bank of China on August 19th, and a visit by the US NSA Jake Sullivan to Beijing in the last week of August.
Outcomes:
This meeting marked a successful step in improving trade relations between China and the US, with both parties agreeing to provide necessary support for trade and investment in fields such as healthcare, medical technology, and clean energy. Under Secretary Lago highlighted opportunities for US companies to collaborate with Chinese institutions in the healthcare industry, dependent on meetings with China's National Health Commission. Lago also promoted opportunities for US companies seeking to expand business opportunities in China, and exports to China in the climate and environment sector.
During the meeting, the Chinese side expressed strong concerns over the additional Section 301 tariffs announced earlier this year. Most notably, tariffs on:
Electric vehicles (EVs) were set at 100%
50% on semiconductors
25% on lithium-ion batteries, graphite and other critical materials.
These tariffs were announced in response to China's overcapacity in these industries, raising concerns about the future of US businesses, workers, and national security. The US did not negotiate on this issue at the September 7th talks according to KSG sources and publicly released statements, but reaffirmed their goal of maintaining a civil trade relationship with China.
Both sides have agreed to continue regular communication over the following months, and the US Department of Commerce plans to support a clean energy-related trade mission in China later this year.
Forward Look:
The US-China trade war has continued to escalate in the past year. KSG assesses that despite aggressive trade restrictions, the US is determined to stabilise bilateral ties with China and compartmentalise their areas of contestation to reduce hostility. The Biden Administration’s strategy appears to be aimed at ensuring reciprocal economic warfare with China does not rapidly escalate, while also demonstrating the Democratic party to be 'tough on China', and an advocate for American workers in the upcoming presidential election.
While this meeting did not result in any breakthroughs on the trade restrictions imposed on China, it demonstrates that both parties are determined to maintain good bilateral trade relations as they are highly interdependent (and KSG assesses that they will continue to be for the next 2 years at least). However, a Trump presidency is likely to be more aggressive on economic warfare with China and may seek to accelerate the process of decoupling.
The Biden Administration is undoubtedly determined to minimise China's role in several industries, including EVs, semiconductors, lithium-ion batteries, solar cells, and critical materials. The US asserts that China's unfair trade practices have allowed it to dominate these markets and harm local manufacturers. KSG assesses that a Trump victory would see this strategy accelerated, whereas Harris would likely keep it at a similar rate.
The discussions in Tianjin signal that both nations are committed to maintaining dialogue and exploring opportunities for collaboration in other critical sectors, such as climate and healthcare. KSG believes that this could open up significant windows for companies like GE Renewable Energy, which is already part of the renewable energy industry in China, to expand their presence in the growing market. The American side also highlighted opportunities for US companies to improve healthcare outcomes in China, potentially benefiting MedTech developers like Medtronic and GE Healthcare as well as pharmaceutical companies like Pfizer, Merck or Johnson & Johnson.
Although China appears to be an attractive and profitable business opportunity, KSG cautions against investing in China, given a rapid deterioration in US-China relations is possible at any moment (albeit the remainder of 2024 is unlikely to see tension lead to conflict in recent KSG wargaming - mainly given the mutual desire for rapprochement in areas of tension). Similar to the Russian invasion of Ukraine, Western companies could suddenly find themselves forced to pull out of China entirely due to government sanctions.