U.S.-China Relations Deteriorate Further; Infrastructure Bill Stalls
Author: Greg Valliere
July 21, 2021
NOT SINCE OCTOBER OF 1950, when China sent thousands of troops into Korea, have relations been this bad between Washington and Beijing. Chinese officials may have been happy to see Donald Trump leave, but Joe Biden has been tougher — he has unified U.S. allies in opposing Chinese cyberwarfare.
THE KEY ISSUE isn’t China’s expansionist goals, although there’s persistent anxiety over Beijing’s policies in the South China Sea. Nor is the key issue over trade, where talks have stalled. The key issues are China’s treatment of dissidents and — more importantly — control of the internet amid all-out cyberwarfare between the two countries.
WHAT MAKES THIS CLIMATE DIFFERENT from the Trump era is the willingness of the U.S. to enlist allies against Chinese hacking and its apparent support for ransomware; Trump preferred a “go it alone” strategy, largely focused on tariffs.
THE GLOBAL ANXIETY OVER CHINA — propelled by polls that show overwhelming public suspicion toward Beijing’s handling of Covid — has simply stiffened the resolve of the Chinese Communist Party, headed by the increasingly strident Xi Jinping. Chairman Mao has been rehabilitated.
WHAT ARE THE IMPLICATIONS OF THIS DETERIORATING RELATIONSHIP?
First, Biden will not relent, especially after a brazen hack by Chinese cyberterrorists on Microsoft last month.
Second, most U.S. allies are siding against China (and Russia) over the issue of cyber-ransom; the leaders of both of the Communist countries have encouraged this terrorism, U.S. officials believe.
Third, trade relations between the U.S. and China have stalled and probably won’t produce any new deals on lingering issues like intellectual property for at least the rest of the year.
Fourth, there’s a growing consensus in Washington to spend more on the U.S. Navy, in light of Chinese designs in the South China Sea.
Fifth, there’s a high likelihood that Congress will pass legislation to give U.S. manufacturers fresh incentives to compete with China.
Sixth, Biden is likely to continue warning U.S. corporations to curb operations in Hong Kong, where data theft is rampant.
Seventh, there’s a still the option of de-listing Chinese stocks on U.S. exchanges, and the cloud over Chinese IPOs may persist.
THE MELT-DOWN SCENARIO, OF COURSE, would involve an overt Chinese attempt to gain control of Taiwan, the semiconductor powerhouse that Beijing considers part of mainland China. Most observers think China is not inclined to use military force, but that option could become an increasing feature of the rhetorical war with Washington.
BIDEN TALKED WITH XI in February and eventually they will talk again, just as Biden talked with Vladimir Putin. But for now the risk is that relations between Washington and Beijing could get worse before they get better; more sanctions and export controls are likely from both sides.
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INFRASTRUCTURE — NO BILL YET: Chuck Schumer may have miscalculated — his ambitious goal of beginning procedural votes on an infrastructure bill, starting today, has alienated key Republicans, who will refuse to move a bill that hasn’t been fully written.
IT’S POSSIBLE THAT THE $1 TRILLION infrastructure package could begin moving by next week, but there’s growing unrest in the more liberal House, where progressives say Schumer has been too accommodative in his effort to appease a handful of Republican moderates.
SO THIS WILL DRAG ON, perhaps past the Senate’s Aug. 6 target for the beginning of a long recess. We still think the first infrastructure bill can pass within a few weeks, but the heavy lifting on other legislation — a sweeping social infrastructure package, tax hikes, a debt ceiling extension, and a fiscal 2022 spending package — won’t come until well into the fall.
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