China Trade War: Trump’s Deal Changes Everything (or Nothing?) w/ Brad Setser

Quick Overview

Brad Setser argues that the Biden administration's approach to China builds upon the Trump administration's tougher stance, particularly by focusing on building a global coalition against China's trade and industrial policies, which he views as largely predatory and dependent on state subsidies, rather than solely relying on US tariffs.

Key Points: The Biden administration's approach to China is seen as continuing the Trump administration's tougher stance, focusing on building a global coalition against China's policies. Brad Setser highlights that China's trade surplus has grown significantly since joining the WTO in 2002, reaching $1 trillion to $1.2 trillion annually, creating an imbalance. A key element of the trade conflict involves US export controls on critical technologies like advanced chips, which China is retaliating against. China's economic model, driven heavily by state-backed industrial policy and investment (e.g., in EVs and solar), creates competitive advantages that the US is attempting to counter. Setser notes that Trump's initial tariff strategy (e.g., 10% across the board, later 25% on specific goods) was effective in raising stakes but didn't fully address the underlying structural issues. The risk is that tariffs alone are not enough; the US must work with allies to create a balanced trade relationship and reduce dependency on Chinese supply chains, especially in critical areas like advanced chips.

Context: The video features an interview between John Gillen of MilkRoad Macro and Brad Setser, an American economist and Senior Fellow at the Council on Foreign Relations specializing in global trade, capital flows, and international economics. The discussion centers on the ongoing US-China trade relationship, particularly analyzing the continuity and evolution of trade policy between the Trump and Biden administrations regarding tariffs, supply chain vulnerabilities, and China's industrial policies.

Detailed Analysis

Brad Setser argues that the Biden administration's China policy is fundamentally an escalation of the Trump administration's approach, characterized by the effort to build a global coalition against China's trade practices. Setser points out that China's trade surplus grew substantially after joining the WTO in 2002, reaching $1-1.2 trillion annually, which he considers an imbalance that needs addressing. He notes that Trump's tariffs, initially set around 10% and later rising to 25% on many Chinese goods, served as a tool to force negotiations but didn't resolve the core structural issues. A major current focus is US export controls on advanced technology like semiconductors, to which China is retaliating. Setser emphasizes that China’s state-subsidized industrial policy, particularly in sectors like EVs and solar, creates an uneven playing field. While the US is trying to build alliances to counter this, the underlying issue remains that China's economy is heavily reliant on exports and state support, rather than domestic consumption. He suggests that the US must be cautious about the long-term implications of escalating trade restrictions and that a sustainable resolution requires China to adjust its internal economic structure and currency management, which it has been reluctant to do.