Adviser to Five U.S. Presidents Expects China Tariffs to Remain

The upcoming inauguration of Joe Biden as president will allow the U.S. to reboot its relationship with China after a tumultuous four years under Donald Trump. What exactly will that mean for these two competing economic powers?

Tiedemann Advisors managing director Robert Hormats, a former vice chairman of Goldman Sachs International and adviser to the administrations of five U.S. presidents, joined the “What Goes Up” podcast to discuss what’s at stake.

He described the challenges Biden will face from China’s ambitions to be a global leader in technology to how he doesn’t expect an immediate withdrawal of some of the tariffs imposed by Trump.

Below are some lightly edited excerpts of the conversation.

On the rebooting of the U.S.-China relationship:

“There are different levels in this relationship. One, clearly President Xi Jinping has aspirations of Chinese leadership of the global economic order, and perhaps political order of the first part of the 21st century, and really wants China to play a global leadership role. And in part because over the last several years the U.S. has really not played a very proactive role in shaping the global order or in supporting alliances or international institutions. The Chinese have seen the opportunity to take advantage of this opening and exert leadership. So that’s really part one. Part two is that Xi Jinping has strengthened the role of the Communist Party in China. He is clearly one of the most dominant personalities and strongest leaders China has had.”

On China’s tech ambitions:

“He is clearly intent on developing China’s role as a global technological power of the first order in artificial intelligence, quantum computing, 5G, any number of things. He feels that China was passed over because of its own internal weakness. And because of the West sort of leaping ahead in the last two industrial revolutions, he wants China to be a leader in the technological revolution of the 21st century. And that means competing very hard with the United States and putting a lot of money into this competitive effort. And there’s certainly a greater degree of nationalism in China than before. And a lot of tensions with the U.S. over intellectual property protection, how to deal with businesses, trade secrets, a whole range of things.”

On a recent conversation Hormats had with the foreign minister of China:

“China also, and this was emphasized by the foreign minister, wants to be able to work with the United States in certain areas where there is the potential for collaboration. Certainly there has been a history of cooperation on medical issues. Chinese doctors work in virtually every hospital in this country. China’s working on advanced medicines, including vaccines and therapeutics. China also wants to play a major leadership role on environmental issues. And if the U.S. now under Biden wants to regain its leadership on environmental issues, we’re going to have to find some way of working with China as the Obama administration did.”

“And then there’s the financial area where, if you go back to 2008, the financial crisis of that era was resolved in large measure because of cooperation between the United States and China, the People’s Bank of China and the Fed, the U.S. Treasury and the Chinese finance ministry working together.”

On U.S.-China competition:

“So it’s a competitive relationship. We’re dealing with a country that is far more competitive in far more areas than the United States has faced at any time during the post war period. And we have to figure out how we can strengthen our own competitive capabilities if we’re going to compete with China. And that, I think, is one of the things that President Biden will want to emphasize.”

“I do think that Biden and both Republicans and Democrats in the business community in general want a tougher line on China than the United States has displayed before on such things as intellectual property, the rules with respect to data privacy, how foreign companies are dealt with, a whole range of things for trade secrets of American companies. So I think he’s going to not revert back to the softer period of the past, but will take a harder line. I don’t expect an immediate withdrawal of some of the tariffs and I don’t expect another grand realm of trade negotiations or so-called round two. I think he will try to get China to comply with the commitments of round one.”

On the need for the U.S. to prioritize its demands on China:

“The United States has to decide what it really wants from China. It can’t just present a whole menu, a so-called Chinese menu, and say, ‘We want you to do all of these things.’ We have to figure out, preferably on a bipartisan basis, what the priorities are from our own point of view. Second, how we work with our friends and allies. And I think this has been a deficiency over the last several years—that we have so many trade hassles with our friends and allies, using various parts of a trade pact that they are not in a mood to really work with the United States on China, even though many of our objectives vis-a-vis China are similar to the objectives of other countries like Germany.”