The Biden Administration’s Strategy of Economic Diplomacy

Li Wei

Since Biden took office as the US President， he has shifted his focus from the so-called “free market economy” to government-led economic diplomacy. He builds exclusive economic alliances in the industrial chain， advanced technology， infrastructure and digital trade， with the fundamental purpose of forging a united front against China economically and changing the status quo of the global market by the hand of government. Through these measures， the US seeks to revitalize its domestic economy and， in the meantime， ratchet up economic competition with China. This will profoundly affect the geopolitical and economic circumstances of Chinas development and security.

The Biden Administrations Economic Diplomacy Strategy Aims to Contain China

Biden took office at a time when the US was faced with numerous daunting challenges both at home and abroad， and has since pushed ahead with a broad policy agenda including an economic strategy， which is composed of industrial support policy at home and economic alliance diplomacy abroad. In terms of industrial policy， his administration passed the Infrastructure Investment and Jobs Act， CHIPS and Science Act and Inflation Reduction Act successively by virtue of the Democratic Partys majority in Congress. The three Acts represent a major victory of the Biden administration in economic legislation and constitute the core of Bidenomics. Their aim is to boost so-called onshore production， revive local manufacturing and thus strengthen the economic competitiveness of the US on a global scale.

Such an economic strategy cannot go without the cooperation of allies and partners. On account of that， the Biden administration vigorously promotes economic diplomacy at both the global and regional level， attempting to build a new international economic alliance under the banner of so-called economic security. And by aligning it with the so-called “democratic alliance”， the administration is architecting a two-pronged foreign strategy.

At the global level， the US focuses on supply chain resilience and infrastructure building. In terms of supply chain diplomacy， it hosted two related global conferences， namely the Global Summit on Supply Chain Resilience convened by Biden himself in November 2021， and the Supply Chain Ministerial Forum co-chaired by US Secretary of State Blinken and Secretary of Commerce Raimondo in July 2022. Both meetings drew the participation of countries that are highly relevant to global supply chain， reflecting the US ambition to build a supply chain alliance and lead the efforts to reshape supply chain.

In terms of infrastructure diplomacy， the US formally announced at the G7 summit in June 2022 to launch the so-called Partnership for Global Infrastructure and Investment （PGII） which was born out of the 2021 Build Back Better World （B3W）. Biden announced further that the US would raise $200 billion for PGII over the next five years and seek to raise $600 billion for global infrastructure investment together with G7 countries.

At the regional level， the Biden administration rolled out an economic diplomacy strategy in full swing in the Indo-Pacific， the Atlantic， the Americas and the South Pacific Island region. The Indo-Pacific Economic Framework （IPEF）， as Bidens main economic competition mechanism against China in the Asia-Pacific， has been joined by 14 member countries so far. It aims to ensure supply chain resilience and strengthen cooperation in clean energy， digital and technology sectors. Its four key pillars of trade， supply chain， clean energy， tax and anti-corruption correspond to a connected economy， resilient economy， clean economy and fair economy respectively. With its unveiling the US fills up the missing part of the economic cooperation mechanism in its Indo-Pacific strategy， showcasing its intention to reshape regional economic order and revive its regional economic leadership， which will disrupt the existing RCEP and CPTPP-based economic cooperation pattern in the region. Chip 4 is another economic alliance the US is trying to build in Indo-Pacific. As a semiconductor industry-based alliance that covers the whole industrial chain including design and manufacturing， it attempts to lure economies with advanced semiconductor manufacturing capabilities such as the ROK， Japan and Taiwan and wall off China from the global semiconductor supply chain.

The Biden administration unfolded its economic diplomacy in Europe as well. In June 2021， Biden and European Commission President Ursula Von der Leyen announced the establishment of the US-EU Trade and Technology Council （TTC） at the US-EU summit in Brussels. In a way， the TTC resurrects in a new form the Transatlantic Trade and Investment Partnership （TTIP） that died from the disagreement between the US and EU， and meanwhile includes technical cooperation into it besides trade. In September 2021， the US and the EU co-hosted the first TTC ministerial meeting in Pittsburgh， marking the inauguration of the TTC as a new mechanism for transatlantic economic cooperation. At this meeting， the two sides reached consensus on five areas of cooperation， namely advancing investment review， multilateral export control， rules for research， development and application of artificial intelligence technologies， semiconductor supply chain resilience， and addressing challenges posed by non-market economies. In May and December 2022， the two sides held the second and third ministerial meetings in Paris and Maryland respectively， which further improved the mechanism.

The US also launched the Americas Partnership for Economic Prosperity （APEP） in its backyard. In June 2022， at the ninth Summit of the Americas in Los Angeles， Biden announced to inaugurate cooperation initiatives covering investment， clean energy， supply chain and trade. He claimed to develop an economic cooperation framework between the US and other American countries， which will be discussed with partners and kickstart formal negotiations in the future. While details about the partnership have yet to be finalized， there is little doubt that it signals a significant increase in the US economic engagement in the Americas.

More than that， the US joined hands with the UK， Australia， New Zealand， Japan and other countries to launch the Partners in the Blue Pacific （PBP） in the South Pacific， which aims to help Pacific Island countries deal with climate change， illegal fishing and other problems， and thus strengthen the diplomatic presence of the five countries in the region. In short， the Biden administration is vigorously pursuing the strategy of economic diplomacy at multiple levels in order to reconstruct the US-centered global economic order and weaken Chinas role in the global economy.

The Impact of the Biden Administrations Economic Diplomacy Strategy

The Biden administrations economic diplomacy strategy mainly targets China， as it excludes China from a number of economic partnerships at both the global and regional level. It will impact China and the world at large in three aspects.

First， it will further intensify the economic competition between China and the US in the global and regional arenas. Since 2010 when the US stepped up its containment of China， the economic competition between the two has become increasingly prominent， and particularly so since 2018 when the US launched an all-out trade war against China. The economic diplomacy strategy will further ramp up competition. In particular， as it lays stress on strategic considerations of national security relating to international economic cooperation， economic factors have increasingly become a weapon for geopolitical rivalry. The two countries are having an ever harder time getting along with each other in global and regional economic governance. Moreover， the US applies its economic diplomacy strategy against China in more and more fields from industry， technology， digital trade to clean energy， infrastructure and supply chain， etc.， which enables the US to exert suppression on China in every economic sector， and worsens the environment for bilateral cooperation between the two countries.

Second， it will further divide the global economy and even split it into two parallel market systems， thus endangering global economic governance. Since the 1990s， economic cooperation between China and the US has greatly benefited economic globalization， of which China has always been a strong advocate especially since its accession to the WTO. It can be said that the US engagement strategy with China is an important basis for the success of economic globalization. Today， the US is turning away from engagement to competition in an attempt to contrive a new system without China. But China now is the worlds second largest economy， largest exporter， largest manufacturing power and the largest trading partner of more than 130 countries. The world cannot live without China. The US economic diplomacy coerces many countries into taking sides between China and the US， which has seriously disrupted the global market， runs counter to the basic spirit of the so-called liberal international order that the US has always professed， and will certainly further disturb the global economic governance system.

Third， it will reduce Chinas economic development space and compromise Chinas economic security. The Biden administration unfolds its economic diplomacy strategy in many regions， such as the Indo-Pacific， Europe， the Americas， and the South Pacific， and attempts to squeeze the space of economic cooperation between China and other countries by uniting with its allies and partners. As a result， Chinas economic cooperation initiatives such as the China-EU Comprehensive Agreement on Investment （BIT） and the cooperation mechanism between China and Central and Eastern Europe have all encountered obstacles to varying degrees due to pressure from the US. The normal business operation in the international market of high-quality Chinese enterprises represented by Huawei has also been greatly hindered by the US economic alliance diplomacy. The cooperation between China and countries along the Belt and Road may be affected by PGII. Moreover， through these various economic cooperation frameworks， the US attempts to reshape the global industrial structure by promoting the reshoring of high-end industries and transferring low-end ones to India， Southeast Asia and other countries and regions， which will endanger industrial security and stability of global economic order.

All in all， the Biden administration has launched a series of dazzling economic diplomatic measures since taking office in order to build up a wall around China. The fundamental purpose is to weaken Chinas supply chain advantage with the help of geopolitical force， and then undermine its status as the worlds factory.

Challenges Faced by Biden Administrations Economic Diplomacy Strategy

While the economic diplomacy strategy appears to seem ambitious， there is much uncertainty about how many policy measures will actually materialize. In US history， many domestic and foreign policies made big promises in the beginning but in the end failed to deliver much. As far as the economic diplomacy strategy is concerned， its delivery is mainly limited by the dual pressure from inside the US and the international community， as well as obstacles that may appear during the implementation process of specific policies.

At the domestic level， the strategy is constrained by both popular support and the trend of political development. On the one hand， the Biden administration is partly built upon the support of middle class. As the backbone of US， the middle-class group cared about domestic growth and jobs rather than the ambitious global strategy of the Biden administration. This leads to their limited support for the massive resources that the administration is devoting to economic diplomacy， considering that they value immediate and short-term results more than propaganda slogans.

On the other hand， political party rotation in the US is another factor deciding the success of the economic diplomacy strategy. The economic and diplomatic measures adopted by the Biden administration require consistent efforts and are hard to yield results in the short term. But the polarization and vetocracy that have been developed in the US will make consistency hard to happen. As soon as Trump took office， he announced his withdrawal from the Trans-Pacific Partnership （TPP）， letting the eight years of economic diplomacy efforts by the Obama administration go down the drain in a twinkling， which revealed the absurdity of US bipartisan politics. In the 2022 mid-term election， Republicans narrowly defeated Democrats and took over the House of Representatives， which will be bound to stymie the economic diplomacy strategy of the Democrats-led administration.

At the international level， the US faces disloyalty from its allies， as they do not completely follow the US lead. The economic diplomacy strategy is aimed at uniting allies to contain China. But for most countries， containing China is not only contrary to their interests， but also very costly. Instead of boarding the chariot of the US willingly， many countries just act accordingly under US coercion and inducement.

Furthermore， the IPEF and the APEP that the US is currently promoting are all relatively loose cooperation initiatives that lack binding force in implementation. Although principles and directions have been set for most of them， concrete road maps have yet to be issued. If the US only asks its allies to charge forward in its anti-China efforts without providing substantive benefits， it is highly probable that it wont get what it wishes.

By contrast， China enjoys many advantages that can hedge against the Biden administrations economic diplomacy strategy. Over the past four decades of reform and opening-up， China has accumulated huge advantages in infrastructure， market size， talent pool and industrial clusters， which have created a magnetic field effect for global business community. Whereas the Biden administrations attempt to change the market through economic diplomacy strategy is like sailing against the current. After all， the main body in market is not government but business， who is destined to chase after profit instead of heeding governments instructions when they go against market rules.

Compared with his predecessors， Biden made economic diplomacy a new addition to his international strategy. His administration has introduced many new economic cooperation initiatives at both the global and regional levels. Even though they mainly target China and will undoubtedly have a certain impact on Chinas economic development and security， it remains to be seen how many of them will actually be delivered.

Faced with the blanket suppression and containment of the economic diplomacy strategy， China needs to give full play to its significant advantages in infrastructure， market size， talent pool and industrial clusters， and vigorously build the most extensive economic partnership network in order to cope with the pressure imposed by the US.

Li Wei is Professor at the School of International Studies， Renmin University of China