The covid-19 pandemic and the impacts of the virus mutation have heavily affected the world economy. But they have not been the only ones to constitute a threat. The tensions between the two biggest economic powers, the United States and China, to the point it has been said there was a new “cold war”, have worried and the questions we can rightfully ask about the intentions of the new American president are still there. His predecessor had wanted to affirm his desire for power. In his slogan “America first” there was both the priority given to the satisfaction of American citizens needs and the affirmation according to which the United states were and intended to stay the first world power in economic issues as in international relationship. China, on its side, along with preventing itself to will to participate in a kind of race for position, enjoyed such an economic development that it was threatening American supremacy, especially in high technologies domains. The country was also expanding, thanks to its huge financial resources, its influence in the world, for instance through its New Silk Roads project. The possibility of a confrontation has appeared these last years. It did increase due to Donald Trump methods, by large far from traditional diplomatic traditions.
Until now, these tensions have not affected financial markets. Chinese stock exchanges have known a spectacular rebound these last months when it appeared that the country seemed to have overcome the pandemic. They have not been affected by American sanctions targeting some companies. American markets, despite the pandemic ravages were much more grave that in Europe, have not been hurt and the major technological stocks have even set records. Currencies markets have relatively well held out. Chinese currency, which weakened between 2018 and last autumn has even known a substantial rebound (10%) against the dollar. Beijing probably didn’t want to be accused of manipulating its currency to increase market shares. China is the largest owner in the world of United States foreign debt with, in its central Bank reserves more than 1 000 billion dollars in Treasury Bonds. But the country never used this weapon to make pressures on Washington, even today when the United States will have to massively borrow on international markets to finance the twin deficit of its budget and its current account balance.
Right at the start of the beginning of his mandate, Donald Trump had looked for imposing a trade deal to China with retaliatory threats. After negotiations during months, he had to admit that he had to content himself with an agreement with a very limited field. The idea of a Phase 1 to allow him to saving his face was invented. Of course, Phase 2 never occurred. Then targeted measures came against Chinese enterprises. American ones have not anymore the authorization to work with them because they were linked to the State and to the Chinese Army, which could put in danger American safety through the stealing of strategic information or the hacking of sensitive communication networks. The last step of that escalation has been the listing interdiction of major groups operating in strategic activities. American investors didn’t any more have the right to detain their stocks. These last attempts created some trouble in Wall Street. As a first step, market authorities executed the White House order. A few days after, they changed their position, before at last changing again and delisting these companies from the market. A second list, which includes the oil major company, CNOOC, and the mobile phone producer, Xiaomi, has just been published but it appears more as a legacy of the leaving team than an indication that this policy will be kept on with the new administration.
But that aggressive policy, which had no impact on both countries financial markets, did not have more consequences on their trade exchanges. In 2020, when Western countries coped with an historical recession which would have affected Chinese exports, these ones were beating records and even at the end of the year they registered a progression above 7%. Chinese imports were stagnating, despite the economy rebound. So China trade surplus reached 535 billion dollars including 317 billion with the U.S., as a proof of the inefficiency of the Trump method. The Chinese riposte had been much smarter. A major trade agreement with ASEAN countries was concluded and a new regulation regarding foreign investments and trade practices, which was in discussion for years with the European Union, was adopted by the 27 State-members. The Donald Trump aggressive policy had hurt many countries. They reacted through being more conciliatory with Beijing. Instead of weakening the Chinese economy and isolating the country, the Donald Trump action leaded to the opposite situation.
These methods could have charmed the populist share of his electoral basis. It is always tempting to put the responsibility of country weaknesses on the legacy left by previous political leaders or on the behavior of competing countries. But this message has convinced neither American companies, nor consumers. There is a long time since the first ones have organized their supply chains with a high value-added share in China. They were not going to renounce to these practices from one day to another. Regarding consumers, they have not always the choice and when they have it, they did not take into account their president messages.
The new administration which comes into power next week is not going to immediately make a 180° turnaround in its relationship with China. But it is highly likely that it will not continue the aggressive policy of its predecessors. The change will first be about economic policy. Joe Biden is going to put into practice a massive demand support policy : increase of the minimum federal hourly wage, which will be doubled and reach 15$, distribution of a 1 400$ check to people having low revenues, unemployment financing by the State, supports to Universities and to students. At the end, the economic philosophy which is inspiring this policy it is not very different from what has been done in France in 1981! But the consequences on foreign trade will be much more serious and the trade deficit as public indebtedness, have a high probability to increase again, to the great benefit of Chinese exports since nothing has been done for five years, to suppose it was possible and except some activities in the car industry which were in Mexico, to try to re-localize production in the American territory.
This economic policy change, China will profit, is definitely not going to incite Beijing to restarting the debate and to provoking new tensions. On his side, the new American president in not going to inscribe his action in his predecessor continuity since this one, after his attitude during the transition period, is discredited. That will concern international relationship and especially these ones with China. It is why a respite between the two countries, even if discussions are going on and are sometimes the occasion of disagreements, is the most likely hypothesis.