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The US is eyeing a move that could reignite the trade war with China

The array of new sanctions the Biden administration has imposed on Chinese companies and individuals, the continued deterioration in the relationship between the countries and the bi-partisan hostility to China, however, complicates any effort to lift or reshape the tariffs.

The trade relationship will become even more complicated, and hostile, if the administration does take action against China’s subsidisation of its industries, given how central state direction and financial support is to the centrally-planned nature of China’s economy.

China’s Foreign Minister Wang Yi. China’s relationship with the EU is evolving rapidly.

China’s Foreign Minister Wang Yi. China’s relationship with the EU is evolving rapidly. Credit:AP

The recent strengthening of the role of the central government in the economy – the crackdown on the big tech companies and private sector in China and the mantra of “common prosperity” – reflects an abrupt shift towards greater state control. Targeting state subsidies would be regarded in China as an assault on the core of its political and economic model.

China has always used direct and indirect subsidies to support its state-owned enterprises or sectors deemed of national strategic importance. At the moment its priorities include semi-conductors, electric vehicles, artificial intelligence and quantum computing.

More US tariffs, or an increased rate on the existing tariffs, would have about as much impact as the existing tariffs, which is to say they’d be just as ineffective and add to the self-inflicted damage to US importers and US consumers from the Trump tariffs.

They might be more effective, however, if Biden can convince other countries to join the effort. They might not – almost certainly would not – force China to change its economic and political model but they could make its companies less competitive in global markets.

It is inevitable that the US will seek to enlist its allies, particularly Europe and Japan, should it decide to take aim at China’s subsidies.

The trade relationship will become even more complicated, and hostile, if the administration does take action against China’s subsidisation of its industries, given how central state direction and financial support is to the centrally-planned nature of China’s economy.

Investment by China’s state-owned enterprises in Europe gained little attention or criticism until quite recently. Earlier this year the European Union issued a draft of new rules for the treatment of state-subsidised foreign companies; a paper that didn’t refer to China but which clearly was aimed at China.

The relationship between the EU and China has been evolving rapidly. On December 31, ignoring pleas from the then-incoming Biden administration, the EU signed a comprehensive investment pact with China. The agreement was conditional on final approval from the European Parliament, which appeared certain.

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The Biden administration was determined to rebuild relationships with its traditional allies that Trump had disdained and, from its first moments, prioritised the rehabilitation of those relationships and the creations of broader alliance with some common interests in dealings with China.

In March the EU joined the US, UK and Canada in sanctioning Chinese individuals and companies over their treatment of the Uighurs.

China responded with its own sanctions of EU officials and organisations – and approval of the investment agreement was placed in limbo, not to be revisited until the sanctions are lifted. That’s where it has remained.

If Biden can stitch together a coalition of key partners – the EU, UK, Japan, South Korea and, perhaps, India – to tackle China’s entrenched use of state subsidies, it might not cause China to remake its economic model but it would make its goal of displacing the US as the world’s greatest economic power far more difficult if its access to export markets is more limited, and expensive.

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