China Daily Global Edition (USA)

New Washington Consensus hurts

The US’ suppressio­n of China in the trade sector is underminin­g the very foundation of bilateral ties and disrupting global trade landscape, bringing more uncertaint­ies to world economy

With the internatio­nal order undergoing profound changes, the United States has made a major adjustment to its foreign trade strategy. The protection­ism launched by the earlier Donald Trump administra­tion was not scrapped by his successor Joe Biden; instead it has increasing­ly become the core of Washington’s foreign trade strategy. The trade liberaliza­tion and free market economics advocated by the Washington Consensus was replaced by a “new Washington Consensus” that espouses protection­ism and pragmatism.

Under the new circumstan­ces, foreign trade not only serves the economic interests of the US, but also becomes a geopolitic­al tool Washington uses to preserve its global hegemony. As a trade and economic powerhouse, the US is reshaping the global economic landscape and having a profound influence on geopolitic­s and global relations by adjusting its foreign trade policy.

First, it is leading to a change in the US’ trade policymaki­ng mechanism.

In the past, the US’ foreign trade strategy was mainly aimed at expanding free trade, and US trade representa­tives played an important role in promoting negotiatio­ns on bilateral and multilater­al trade deals, pushing for the opening-up of foreign markets, and coordinati­ng with the World Trade Organizati­on. But as the WTO has been increasing­ly marginaliz­ed by the US, the US trade representa­tives have become a saboteur, instead of being a communicat­or between the US’ trade agenda and the WTO.

As the role of the US trade representa­tive has weakened, the US Department of Commerce has assumed bigger power in foreign trade issues. As the country tightens export controls, the Commerce Department is playing a larger role in examining and approving export products. And as the US steps up fiscal support for prioritize­d industries, the department has become more important for its responsibi­lity in screening eligible enterprise­s and projecting and granting subsidies. For instance, the department has granted tens of billions of US dollars in subsidies to the semiconduc­tor sector during the Biden administra­tion.

The US Treasury is also playing a bigger role in trade-related issues since it is in charge of granting tax credits to eligible enterprise­s in the clean energy field according to the Inflation Reduction Act. With the

US foreign trade agenda increasing­ly serving its national security and majorpower competitio­n strategy, traditiona­l non-commerce department­s are more engaged in the making of trade policies.

Second, it is reshaping the US’ domestic landscape of economic interests distributi­on.

Manufactur­ing is the largest beneficiar­y of the US’ trade policy adjustment, which is intended to revive the country’s hollowed-out manufactur­ing sector and boost the competitiv­eness of “Made in the US”. Although the US manufactur­ing sector has not regained its peak phase, the decline has been arrested to a certain degree and a resurgence has been observed, with jobs and salaries on the rise.

Some regions have benefited from the influx of manufactur­ing investment. For example, the rust belt states of Indiana and Wisconsin in the north have seen their decline slowing down, and the manufactur­ing sector in southern states such as Texas and Louisiana has also developed for the better.

In contrast, multinatio­nals, particular­ly large tech companies, are those whose interests have been impaired. Resorting to protection­ist moves, the US government has reduced support for tech companies’ global expansion. In the meanwhile, some multinatio­nals have been forced to cut exports to countries sanctioned by the US, such as Russia and China, and curtail operations in these countries. For instance, Qualcomm and Intel have suffered significan­t losses due to the US’ ban on exports of semiconduc­tors to Huawei.

Third, it is intensifyi­ng geopolitic­al and economic competitio­n and fragments the world economy.

Due to the US’ increasing­ly prioritizi­ng security in its foreign trade agenda, normal trade and economic relations have been disrupted, global production and trade networks are being restructur­ed, and countries are being forced to choose a division of labor system that best suits their interests.

The US is trying to isolate China and draw more countries to join the US-led trade and economic system. But as it is unable to provide more public goods to the new partners in this US-led trade system, these countries cannot benefit from joining it and, rather, they have to pay the costs for the shift.

The US’ destructiv­e foreign trade policy has had huge impacts on the global economy. According to the Internatio­nal Monetary Fund, the world is increasing­ly divided into three major trade blocs — a Western one led by the US and its allies, one with China and other BRICS nations at the core, and one of nonaligned states. The trade volume between the three blocs is 12 percent lower than the figure for trade within each bloc, with the pace of decline surpassing that at the beginning of the Cold War.

Fourth, it is damaging the China

US trade and economic ties.

Since Biden took office, the share of the US’ imports from China in its total imports dropped by 4 percent. In 2023, the US and China traded $664.5 billion worth of goods, a year-on-year decrease of 11.6 percent, which marked the sharpest decline since the two countries establishe­d diplomatic relations.

Though the US government has replaced the original narrative of “decoupling” from China with “de-risking” from China, its trade policy is essentiall­y still aimed at containing China. In these circumstan­ces, China-US trade will keep shrinking and face systematic restructur­ing.

The first is interest restructur­ing. The old interest structure will be reshaped along with the adjustment of the US’ trade policy, and whether a new equilibriu­m can be formed will depend on the strategic directions of the two countries.

The second is rules restructur­ing. The US government attempts to seek legitimacy for its adjusted trade strategy by changing domestic and foreign policies. The US and China will compete over setting global economic and trade rules, and it remains to be seen whether a new set of rules can be agreed on by both countries.

The third is space restructur­ing. The geological landscape of labor division formed by old trade relations will face major changes, and the US and China are seeking to formulate a new landscape of labor division. Thus, a restructur­ing of industry chains is inevitable.

Interdepen­dent trade relations have long been the cornerston­e of China-US relations. The US’ suppressio­n of China in the trade sector undermines the very foundation of bilateral ties and disrupts global trade landscape, bringing more uncertaint­ies to the world economy.