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The Biden administration will "build on" existing tariffs on billions of dollars of Chinese imports as part of a strategy against the Chinese government for failing to meet commitments under the Trump-era Phase One deal, U.S. Trade Representative Katherine Tai said in an interview with Politico on Thursday.

Why it matters: Tai's comments come as the Biden administration seeks a new trade strategy with Beijing while navigating U.S. companies' calls to lift tariffs.

China is behind on its commitment to purchase an additional $200 billion in U.S. goods, according to Politico.

With the Phase One deal signed by former President Trump set to expire at the end of 2021, the Biden administration will need to decide whether to renegotiate or move in a different direction, Politico notes.

What she's saying: Trump's tariffs "had the effect of getting a lot of people's attention," Tai told Politico.

She added that they are a "tool for creating the kind of effective policies, and [are] something for us to build on and to use in terms of defending to the hilt the interests of the American economy, the American worker and American businesses and our farmers, too."

"I think it's going to be important to review China's performance with China, and that's going to be the critical first step in my mind," Tai said.

The U.S.'s relationship with the European Union will be key to their strategy, she added. 

"I do think that there is every reason for us, because of our shared interests, to build on the relationship between us," Tai told Politico. "For itself, because it is inherently valuable, but also to build on that relationship on a collaborative basis for taking on the challenges that we are both experiencing."

The big picture: Tai was confirmed in March and had promised that she "will not hesitate to make use of the agreement’s mechanisms when China falls short of its commitments."

What to watch: Tai will deliver a speech Monday on the U.S.-China trade relationship at the Center for Strategic and International Studies in Washington, per Politico.

Go deeper: Trump's U.S.-China transformation

Editors' note: The headline and lede have been edited to clarify Tai's comment that she would "build on" existing tariffs. 

U.S. trade chief: Biden team will "build on" Trump-era tariffs against China

The tariffs are "something for us to build on ... in terms of defending to the hilt the interests of the American economy."

Photo of Katherine Tai in a dark navy blue blazer looking up to her right

U.S. Trade Representative Katherine Tai at a Senate Finance Committee hearing in May. Photo: Pete Marovich/The New York Times/Bloomberg via Getty Images

China

Trade war

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

World

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Data: U.S. Bureau of Economic Analysis; Chart: Axios Visuals

The U.S. current account deficit, the difference between what goods, services and investments Americans are buying from other countries versus what they are selling, jumped to $188.5 billion in the fourth quarter.

Why it matters: That was the largest shortfall since 2007.

Keeping score: Former President Trump cited the large U.S. current account deficit as a primary justification for the trade war with China.

The deficit more than doubled from $83.9 billion when Trump took office in the first quarter of 2017.

Even prior to the pandemic, the current account deficit had risen notably, touching $114.6 billion in the first quarter of 2020.

Trump more than doubled the U.S. current account deficit

President Trump used the U.S. current account deficit to justify his trade war with China.

Trade deficit

AFL-CIO boss Richard Trumka told Jonathan Swan in an interview for "Axios on HBO" that former Presidents Clinton and Obama didn't understand unions' importance — and were disappointments to organized labor because of it.

What they're saying: "Joe Biden has surrounded himself with people that are worker-friendly, so that in the multitude of decisions that are made every day without the president being involved, they're going to think about the impact it has on workers," Trumka said.

"That's a significant difference and a beneficial one for workers in this country," Trumka added. "And it's one of our reasons for optimism and hope."

Barack Obama and Bill Clinton — the last two Democratic presidents — "didn't understand the importance of labor and the importance of collective bargaining," he said.

"Both of them surrounded themselves with Wall Street people. And so all of their advice was coming from a Wall Street lens.”

Biden "still identifies as a blue-collar guy. ... He doesn't aspire to be accepted by Wall Street. He is what he is, and that is a genuinely good human being that cares about working people."

Why it matters: Trumka knows many union members feel burned by Obama and Clinton — and the Democratic Party, by extension — because of trade deals and other legislation that overlooked or was antithetical to organized labor.

Clinton infuriated organized labor with NAFTA.

When Obama took office in 2009, he didn't use his larger Senate majority to pass the labor movement's top legislative priority at the time — the so-called "card check" bill.

Then Obama tried to seal the Trans-Pacific Partnership (TPP) — a trade deal many labor leaders believed would send American jobs offshore.

The big picture: The labor movement — which has suffered decades of declining power and membership — may never enjoy a more favorable climate in Washington than now.

Biden is vowing to be "the most pro-union president you've ever seen," coupled with Democratic control of the House and Senate.

But in a 50-50 Senate in which Democrats need Vice President Kamala Harris to break ties, it's hard to imagine they can find the 10 Republicans that are needed to overcome a filibuster and support labor's top legislative priority — the PRO Act.

What's next: Asked if he'll urge Senate Majority Leader Chuck Schumer to end the legislative filibuster so Democrats can pass new labor laws with a simple majority, Trumka made a case for why the filibuster was undemocratic — but then demurred. 

"I don't have the luxury of giving you that answer yet because my affiliates and I will debate that and come to an answer. I think I know where it'll go."

AFL-CIO leader: Clinton, Obama let down unions

"Both of them surrounded themselves with Wall Street people."

 AFL-CIO president Richard Trumka. Photo: "Axios on HBO"  

Politics

Labor unions

Axios on HBO

The Biden administration plans to review the phase one U.S.-China trade deal, White House press secretary Jen Psaki said on Friday. Based on publicly available data, it's hard to imagine they'll find anything other than a debacle.

Driving the news: China isn't even close to fulfilling its end of the deal — having come up 42% short of its commitment, Chad Bown, a fellow at the Peterson Institute for International Economics, reported late last week.

The phase one deal was meant to be the Trump administration's reward for U.S. farmers, manufacturers and other business owners who had been bludgeoned by Trump's tax on American businesses via the trade war's tariffs.

What was supposed to happen: The trade war was billed as a plan to bring China to its knees by choking off the all-important American market with 25% tariffs on many imports that would rein in the U.S. trade deficit, boost American exports and slow China's rise as a global superpower.

What really happened: "The trade war with China hurt the US economy and failed to achieve major policy goals," a recent study commissioned by the U.S.-China Business Council argues, finding that the trade war reduced economic growth and cost the U.S. 245,000 jobs.

Last year, the U.S. trade deficit widened to its largest on record. In the fourth quarter, the U.S. goods trade deficit hit its highest share of GDP since 2012 and the U.S. current account deficit jumped to its highest level in more than 12 years in the third quarter.

Foreign direct investment to the U.S. fell 49% in 2020 — outpacing the overall global decrease of 42%.

These trends had all been moving in this direction since 2017, and were accelerated by the coronavirus pandemic as Trump refused to remove tariffs despite their strain on businesses.

The big picture: "The tariffs forced American companies to accept lower profit margins, cut wages and jobs for U.S. workers, defer potential wage hikes or expansions, and raise prices for American consumers or companies," analysts at Brookings noted in August.

The other side: China's trade surplus last year hit a record $535 billion, up 27% from 2019. Exports rose 21.1% in dollar terms in November year over year and 18.1% in December from a year earlier, touching an all-time high.

For the full year, the trade surplus with the U.S. was $317 billion, 7% higher than in 2019.

Foreign direct investment to China rose 4% to $163 billion.

Reproduced from Peterson Institute for International Economics; Chart: Axios Visuals

Most economists agree that trade deficits don't actually hurt an economy. And while the U.S. trade deficit with China did decrease somewhat during Trump's time in office, the deficit increased with other countries and overall. 

Meanwhile, China's trade surplus and its trade with other countries increased.

The bottom line: In addition to hurting U.S. businesses and workers, tariffs also drive up prices, and inflation expectations are starting to rise.

The U.S. current account deficit also is helping further weigh down the value of the dollar, economists say, another factor that could boost inflation.

Manufacturers, including Whirlpool and Polaris, have recently said they are struggling to meet consumer demand due to supply-chain constraints and coronavirus-related safety measures — both of which are pushing up costs.

Trump's trade war on China was a failure in every possible way

China isn't even close to fulfilling its end of the deal.

Illustration of a $100 bill with failed ink stamps on top

Business

U.S. China trade war

Donald Trump

Markets

Axios Markets

Switzerland and Vietnam have officially been designated as currency manipulators, the Treasury Department announced today. 

Why it matters: The designation allows the White House to impose a broad range of tariffs, sanctions and other punishments on the two friendly countries, both of whom have been struggling with strengthening currencies this year.

The Swiss franc is a classic "flight-to-quality" currency, bought in times of global crisis and uncertainty. When that happens, Swiss exporters suffer, and the domestic inflation rate risks turning negative. So the central bank has intervened in currency markets to slow the strengthening of the currency.

Vietnam has been the primary beneficiary of the U.S. trade war with China. Global manufacturers who don't want to have all their eggs in the China basket have been moving some of their operations to Vietnam, which carries much less geopolitical risk. The increase in Vietnamese exports has strengthened the currency, and the central bank has tried to keep that strengthening under control.

The big picture: The "currency manipulator" label is rarely used. Until now it has only been applied to China (in 2019 and between 1992 and 1994), as well as Japan and Taiwan in the late 1980s.

Between the lines: While most U.S. administrations pay lip service to the idea that a strong dollar is in the national interest, Trump has aggressively taken the other side, seeking a weaker dollar — which means he wants other countries' currencies to be stronger. Even though the Swiss and Vietnamese currencies have been strengthening, he doesn't think they've been strengthening enough. 

The bottom line: The designation will likely have limited practical consequence between now and Jan. 21, at which point a friendlier and more multilateralist Biden administration could try to salve any hurt feelings from this move. 

U.S. accuses Switzerland and Vietnam of currency war

The "currency manipulator" label is rarely used.

Treasury Secretary Steven Mnuchin. Photo: Alex Wong/Getty Images

Currencies

Economic tension between the U.S. and China continues to escalate but is shifting in focus — away from the tit-for-tat trade war and toward a more direct confrontation over the future of technology at the heart of the conflict between the world's two largest economies.

Why it matters: The battle between the U.S. and China was always about tech supremacy and the direct confrontation could result in an accelerated splintering of global supply chains and a significant reduction of international commerce.

There are $700 billion of U.S. companies' assets in China, generating $500 billion in domestic sales annually, per Barron's. 

Yes, but: The torrent of anti-Chinese rhetoric by the Trump administration recently has been countered by much softer actions, as the administration attempts to "thread the needle" of looking tough heading into the election while having the Chinese continue to purchase U.S. goods, Mary Lovely, senior fellow at the Peterson Institute for International Economics, tells Axios.

"The tech issue is the big one … for the long term, but for the election it’s not at all clear to me that the tech issue is the big one."

Between the lines: The U.S. trade deficit to China has increased notably this year and China's manufacturing sector has benefited from exporting medical equipment and its recovery from the coronavirus pandemic being far ahead of other economies, especially the U.S.

The Chinese also have insisted they are increasing purchases of U.S. goods in line with the "phase one" trade deal, though they remain well behind a pace necessary to meet the agreement.

Driving the news: President Trump gave his "blessing" to a deal for Oracle and Walmart to form a new entity called TikTok Global, headquartered in the U.S., that will allow the video-sharing app to keep operating in the country but requested $5 billion during a speech as part of the deal to create an "education fund for American youth."

The Trump administration also tried to ban Tencent's ubiquitous WeChat app in the U.S.

Seemingly in retaliation, China has threatened to "block" a deal between U.S.-based Nvidia and Japanese-owned SoftBank for U.K.-based computer chip designer Arm.

China's state-run Global Times did not detail how Chinese regulators could block the deal.

The big picture: "The trade war is fizzling out and the tech war is heating up," David Dollar, senior fellow at the Brookings Institution, tells Axios.

"There are more legitimate areas of concern as China’s tech capability grows and I think there’s more awareness on the part of the United States."

"Part of it is just people waking up and realizing that companies have a lot of access to information about us and we don’t really know what they’re doing with that."

With the U.S. also looking to block Chinese companies like Huawei from access to U.S. technology, Chinese firms are working to develop a home-grown ecosystem to replace products from companies like Intel, Oracle and IBM.

What's happening: "U.S. actions on TikTok are just the latest example of the White House seeking to impede or punish Chinese companies from succeeding in gaining important leverage in technology and global communications and have heightened Chinese sensitivities," Steven Skancke, a former Treasury Department official who now serves as chief economic adviser at Keel Point, tells Axios.

"While TikTok is a highly visible rebuke of a China technology company, it is probably less strategic than what China fears would be a further threat to its plans for Huawei gaining dominance in global  communications."

That's got investors betting big on tech companies from China, which have seen a bigger run-up in stock prices than even U.S. tech shares. 

Watch this space: The tech war could escalate to the point that U.S. companies as large as Apple could be expelled from China, Laura Martin, senior research analyst at Needham, told me on the latest episode of the "Market Banter" podcast. 

"I think if Trump gets re-elected, he keeps turning up the heat on China."

The tech war between the U.S. and China escalates

The direct confrontation could result in an accelerated splintering of global supply chains.

Illustration of two cursor hands making a gun sign pointing at each other. 

Technology

Big Tech

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

The Trump administration's trade war with China and the coronavirus pandemic have crippled U.S. exports this year and could worsen as the administration reportedly is considering export restrictions on China’s most advanced manufacturer of semiconductors.

Where it stands: The U.S. trade deficit has risen to its highest since July 2008 and U.S. exports of goods and services as a percentage of GDP shrank to the lowest level since 2003 in the second quarter.

Why it matters: While exports aren't a major contributor to U.S. GDP, adding such restrictions on sales to a trading partner as large as China’s Semiconductor Manufacturing International Corp. risks doing real harm to U.S. growth as companies try to bounce back from the pandemic.

Between the lines: China's economy is recovering more quickly than other countries but Beijing remains well behind in its commitments to purchase increased U.S. goods and services.

The U.S. already has placed similar restrictions on Chinese telecom giant Huawei, another major buyer of American-made tech products.

Chinese officials say the export restrictions have simply accelerated development of domestically produced equipment to replace the U.S. products.

The big picture: Exports as a percentage of GDP represented 12.4% of U.S. GDP as recently as the second quarter of 2018, and had remained above 12% until Q2 2019, but have fallen precipitously since.

Trump looks to be doubling down, threatening to punish American companies that create jobs overseas and to deny those that do business in China federal contracts, in a White House news conference Monday.

Possible restrictions on Chinese chip exports could do harm to U.S. growth

Trump's trade war with China could be further exacerbated.

Exports

Reproduced from CivicScience; Chart: Axios Visuals

U.S. consumers are getting less concerned about the impact of tariffs on their daily lives, new data show.

What happening: After consumer concern about the tariffs rose to record highs in April and May, CivicScience noted a consistent decline that has pushed overall readings on concern down to nearly their levels before the pandemic began in the U.S.

By the numbers: For the full month of August, 65% of U.S. adults say they’re at least somewhat concerned about the impact of recent trade policies on their household expenses, down three points from 68% in the month of July.

What to watch: Tariffs are still in place on most Chinese exports to the U.S. and on many Chinese imports from the U.S., so businesses and consumers are still paying duties on hundreds of billions of dollars of goods.

Both sides in the U.S.-China trade war have pledged their commitment to the "phase one" trade deal, though President Trump has said he has no plans to negotiate a phase two.

Americans are less worried about tariffs

Concern is nearly down to the levels before the pandemic began.

Tariffs

To satisfy the conditions of the phase one U.S.-China trade deal, China is expected to purchase at least $200 billion more in U.S. exports combined in 2020 and 2021. Data shows that as of July they are more than 50% behind the pace of expected purchases.

By the numbers: So far, China's purchase of covered products was $39.3 billion, compared with a year-to-date target of $83.2 billion, Chad Bown, a fellow at the Peterson Institute for International Economics, notes.

Through July, Chinese imports of all uncovered products from the U.S. were actually 28% lower than over the same period in 2017.

Driving the news: Following a videoconference between senior U.S. and Chinese officials on Monday, both sides said they were committed to carrying out the deal.

More importantly, no adjustments or plans for China to realistically meet the targets were announced despite the severe disruption to its economy as a result of the coronavirus pandemic.

Why it matters: With tariffs still in place on most Chinese exports to the U.S. and on many Chinese imports from the U.S., businesses and consumers are still paying the trade wars costs, but are seeing less than half of the purported benefits from the conflict's lone agreement.

In particular, American farmers, who have suffered greatly from the trade war, were anticipating a boost from the increased Chinese purchases after retaliation from Beijing caused a severe decline in commodity prices and exports last year.

Yes, but: Earlier this month the Department of Agriculture reported the sale of 126,000 tonnes of soybeans to China, the eighth consecutive weekday with large sales to Chinese buyers.

And U.S. oil traders, shipbrokers and Chinese importers reportedly told Reuters that Chinese state-owned oil firms have plans to carry at least 20 million barrels of U.S. crude for August and September.

Between the lines: As Axios' Bethany Allen-Ebrahimian wrote last week, trade is the last major area where the U.S. is still relying on traditional diplomacy with China, as President Trump has ratcheted up measures targeting China heading into the November presidential election.

China is less than halfway to its "phase 1" trade deal targets

So far, China's purchase of covered products was $39.3 billion, compared with a target of $83.2 billion.

Lost amid headlines about the coronavirus pandemic and the seemingly unstoppable stock market rally, has been the monthslong escalation of tensions in the U.S.-China trade war —  and it's likely here to stay.

Why it matters: The tariffs continue to impress a sizable tax on U.S. companies and consumers, adding additional costs and red tape for small businesses, farmers, manufacturers and households trying to stay afloat amid the pandemic.

"The trade war has been quietly intensifying," Stephen Gallagher, chief economist at Société Générale, tells Axios.

Driving the news: White House chief of staff Mark Meadows said late Wednesday that administration officials are "looking at the national security risk as it relates to TikTok, WeChat and other apps" from China and could announce bans in the coming weeks.

That followed remarks from President Trump on Tuesday that he had no plans for "phase two" trade deal negotiations and was "not interested right now in talking to China.”

What's happening: The "phase one" deal was cheered by investors as a positive first step, because it stopped a tit-for-tat tariff escalation that was poised to add a tax to nearly every product traded between the U.S. and China.

However, it did nothing about tariffs on hundreds of billions of dollars of Chinese imports already in place that are paid by U.S. companies.

Why you'll hear about this again: With the U.S. ratcheting up the pressure, there is a decreasing likelihood China lives up to its "phase one" agreement.

That means a diminished outlook for industries that were counting on the $200 billion in increased purchases of U.S. agriculture, energy and manufacturing after a brutal 2019.

Remember: The primary cost of tariffs isn't the tariffs themselves, but the deadweight loss of consumers buying more expensive, or less efficient, products.

The trade war also is a major factor pushing businesses to pull supply chains and production out of China, increasing costs and uprooting longstanding relationships.

For big companies, this will weigh on margins; for small companies, it could mean going out of business.

Don't sleep: Deutsche Bank’s global head of tech strategy Apjit Walia warns that the demand disruption, supply chain upheaval and bifurcated tech standards from a "Tech Cold War" between the U.S. and China could cost the sector more than $3.5 trillion over the next five years.

What's next: Even if Trump loses in November, investors don't expect a significant change in the U.S. approach to China given Joe Biden's recent rhetoric and bipartisan legislation condemning China for its treatment of Uighur Muslims and restrictions on public companies.

The U.S.-China trade war quietly escalates

Photo Illustration: Sarah Grillo/Axios. Photos: Alex Wong/Getty Images and Lintao Zhang/Getty Images

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