America Must Prepare for a War Over Taiwan
Being Ready Is the Best Way to Prevent a Fight With China
In February 2021, two weeks after taking office, U.S. President Joe Biden gave a speech outlining his foreign policy vision. Over the course of 20 minutes, the new president detailed many of Washington’s overseas interests, including promoting democracy and working with U.S. allies to compete against China. He identified a bevy of international challenges, including cyberattacks, nuclear proliferation, and refugee flows. But when it came time to talk about international economics, Biden pivoted away from looking abroad and instead focused his attention at home. “There’s no longer a bright line between foreign and domestic policy,” he said. “Every action we take in our conduct abroad, we must take with American working families in mind.” Washington, he said, must advance “a foreign policy for the middle class.”
That final phrase—“a foreign policy for the middle class”—has become the lens through which the Biden administration has pursued its international economic agenda. On the whole, it means striking a balance between promoting the interests of U.S. working families and pursuing the more strategic and often realpolitik agenda that drives the United States’ national security interests, especially confronting the challenges posed by increasing competition with China. It entails creating a more pro-union, industrial policy approach to investing in U.S. domestic economic renewal and competitiveness so that Washington can continue to project U.S. power. It requires shoring up national security vulnerabilities in supply chains in a way that benefits workers. And it involves working with allies and like-minded countries, strengthening U.S. multilateral leadership, and addressing the failures of former President Donald Trump’s China strategy—in particular by confronting unfair and illegal Chinese economic behavior that hurts American workers, threatens U.S. technological leadership, and undermines international competitiveness.
After over a year in office, Biden’s record on striking an appropriate balance between a foreign policy that is focused on workers and one that involves realpolitik is mixed. He succeeded in striking that balance with his supply chain resilience agenda, including efforts to “reshore” and “friend-shore” production in a way that advanced middle-class priorities and brought manufacturing jobs back home. He passed a landmark $1.2 trillion bipartisan infrastructure and investment act, a large down payment on economic renewal and competitiveness with strengthened “Buy American” policies. He also successfully breathed new life into the United States’ relationships with allies in both the Atlantic and the Pacific regions. This meant Biden was well positioned to advance collective opposition to Russian aggression in Ukraine through sanctions and other economic tools and to jointly take on economic competition with China, especially with European partners.
But on addressing other economic and strategic threats posed by China—including its massive subsidization of domestic companies, its theft of U.S. intellectual property, and its habit of forcing U.S. companies to hand over their technology—the Biden administration has fallen short. It is behind in its battle with Beijing over trade, technology, and Asia’s economic architecture. The administration’s neglect of international financial institutions has allowed China to increasingly gain influence over other countries, undermining U.S. leadership and damaging the United States strategic economic and financial interests around the world.
Biden has, in particular, struggled to craft a coherent trade agenda. Although the president managed to simultaneously help workers and reengage on trade, technology, and economic security with European allies, in the Indo-Pacific, the administration’s unbalanced and sequential approach has deferred crucial multilateral, trade, and investment initiatives at the expense of longer-term U.S. strategic security. During the campaign, Biden argued that Trump’s use of tariffs and his trade policy with China left U.S. farmers and workers no closer to getting the level playing field they deserved. Once Biden won, he promised to undertake a comprehensive review of Washington’s economic policies toward China and to then launch a comprehensive new strategy for the region. But the administration never finished the review, and it never created a fresh approach. The Trump administration’s much-maligned Phase One trade deal—its attempt to correct Chinese economic behavior in exchange for lower tariffs—remains in place, surprisingly unaltered. Major Chinese economic abuses still go unchallenged.
Biden has struggled to craft a coherent
The stakes are now higher, as Indo-Pacific commerce, trade, and investment grow and evolve. China advanced the Regional Comprehensive Economic Partnership, which went into effect earlier this year, and even formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor to a trade deal that the United States negotiated in 2015 before withdrawing under Trump. China is arguably well on track to set the digital standards that will dominate Asia for decades. This means U.S. workers may find that the continent’s enormous export market is incompatible with the products they are producing, cutting their employers off from billions of potential consumers and making that market captive to China’s export machine instead. Ironically, the Biden administration is reluctant to cut trade deals with the region because it is worried that doing so will undermine its ability to win support from domestic workers. But by staying on the sidelines, the United States is both limiting its own workers’ opportunities and passing up the chance to lead the Indo-Pacific’s economic future.
In recent months, it has become more complicated for the United States to properly align domestic and international economic priorities in Asia. Russia’s invasion of Ukraine in late February forced the Biden administration to rework its domestic and international priorities literally overnight. The emphasis on persuading allies to counter China’s economic ambitions and growing influence over trade rules and practices was replaced by the need for a massive collective application of hard economic coercive power against Russia, carried out through unprecedented sanctions and export controls. Before the invasion, U.S. economic policy was focused on strengthening long-term supply chain resilience to ensure the United States had reliable access to critical raw materials, manufactured products, and pharmaceuticals, which are disproportionately produced in China. After the invasion, Washington shifted to addressing immediate commodity shortfalls and energy vulnerabilities from Russia and Ukraine, including not only oil and gas but also wheat, nickel, palladium, and the other critical materials needed for semiconductors and electronics. Even the administration’s bold climate endeavors, designed to help the world move away from fossil fuels, have been given a harsh reality check. The administration has had to confront the risk of demonizing domestic natural gas producers and oil companies, forcing Washington to make a rapid diplomatic about-face in the Middle East and Venezuela to get oil pumping again.
The challenge posed by China has not diminished, and the invasion has not reduced the need to ensure that Biden’s international economic policy agenda remains focused on both immediate and longer-term strategic challenges. In fact, China’s response to Russia’s aggression presents the Biden team with an opportunity. Much of the world is wary of China’s failure to condemn, and its possible support for, Russia’s invasion of Ukraine. The White House can capitalize on this to try to constrain China’s global ambitions, its growing influence, and its threats to the U.S. middle class. The administration’s task now is to take advantage of the current turmoil to recraft a global economic system that will both preserve U.S. leadership and help American workers: a real foreign policy for the middle class.
Biden’s international economic agenda was designed to inextricably link his domestic economic plans and the country’s national economic security. Biden promised to invest in domestic supply chains, infrastructure, innovation, research and development, and manufacturing, as well as to rebuild U.S. alliances to jointly advance common economic security interests.
In an effort to insulate the U.S. economy from international threats, the president began his tenure by conducting a strategic review of U.S. supply chain resilience, designed to identify where the United States was least self-sufficient. By June 2021, the administration had cataloged the country’s main vulnerabilities, chiefly in semiconductors, pharmaceuticals, batteries, and key minerals and materials with implications for U.S. defense and commercial resilience. It expanded the review to include six industrial sectors with vulnerabilities, and it then crafted strategies to strengthen each.
The White House followed this up by creating a multiyear action plan, using both public and private investment, to bring manufacturing for certain critical products back to the United States. The federal government reworked its procurement procedures to invest in new battery production and to stockpile critical minerals and metals. It also implemented new “Buy American” provisions, which closed legal loopholes and got the federal government to use more domestic goods in its own procurement. This was all consonant with Biden’s worker-centric agenda.
The Trump administration had also tried to reshore domestic manufacturing. But Trump’s efforts mostly consisted of haphazard, counterproductive tariffs on friends and competitors alike. This alienated allies and did little to address the trade deficit that he argued was at the root of the United States’ economic woes. Biden, by contrast, has worked with allies in both Europe and the Indo-Pacific to build supply chain resilience. He recognized that countries in both regions were themselves at risk of being victims of China’s aggressive, weaponized trade policies. Beijing, for example, had issued vindictive trade restrictions on Australia after Canberra called for an independent inquiry into the origins of COVID-19.
Biden, unlike Trump, has worked with allies in Europe and the Indo-Pacific.
Biden’s supply chain diplomacy was embedded in the establishment of the U.S.-EU Trade and Technology Council in June 2021; the council is addressing the United States’ and Europe’s shared vulnerability in areas such as critical minerals, semiconductors, and battery production. That diplomacy was also on display in October 2021, when, on the sidelines of the G-20 meeting in Rome, the administration hosted a summit on global supply chain resilience with leaders from 14 other countries and the EU, including Canada, the Democratic Republic of the Congo (which is the world’s leading source of cobalt, a metal key to the transition to green energy), India, Japan, and South Korea.
Within his first year, Biden also realized one of his most ambitious campaign promises: investing $1 trillion in the country’s long-neglected infrastructure. His massive bipartisan Infrastructure Investment and Jobs Act will improve the United States’ transportation systems, strengthen its digital connectivity, boost the country’s cybersecurity, and create a greener, more resilient energy grid. These changes may seem largely domestic in nature, but they have implications for foreign policy. Better cybersecurity, for example, will protect the United States from hacking by China, Russia, and nonstate actors. Improved infrastructure will strengthen the U.S. economy’s ability to compete with a rising China. And the infrastructure package will create more, better jobs for Americans, especially in underrepresented parts of the country.
Biden’s domestic economic security policy is not yet finished. To counter China and boost U.S. innovation, manufacturing, and research and development, Congress will need to soon finalize and pass a bipartisan innovation and competitiveness bill. This legislation would mean substantial federal investment in quantum computing, semiconductors, robotics, and artificial intelligence—industries China seeks to dominate. The Russian-Ukrainian war, meanwhile, will subject the world to a variety of critical shortages, including of semiconductor materials; the United States will need plans to address this.
Under Trump, the United States turned its back on its allies and partners. The former president imposed tariffs on steel and aluminum imports from EU countries—arguing that those imports were threats to U.S. national security—and by the end of his term, the United States’ closest friends harbored deep misgivings about Washington’s intentions. That mistrust posed a significant threat to Biden’s economic agenda, including his plans for competing with China. In December 2020, after Biden had won the presidential election but before he took office, the EU announced that it had agreed to a proposed investment deal with China called the Comprehensive Agreement on Investment, despite objections from Biden’s team. (Although the EU has since indefinitely postponed full approval of the agreement, it did so because of Chinese diplomatic missteps, not because of the incoming Biden administration’s request.)
To try to repair this damage, Biden quickly worked to improve the United States’ relations with its allies and partners. Within a month of Biden’s tenure, the United States was back in the Paris climate accord. Thereafter, Washington helped spearhead a new agreement on carbon emissions and other climate targets at the 2021 UN Climate Change Conference, known as COP26. In an effort to address COVID-19-related economic shortfalls, particularly in poor countries, the administration agreed to support an allocation of $650 billion in Special Drawing Rights by the International Monetary Fund (IMF). And to level the playing field in global taxation, the White House helped finalize an agreement on global tax reform, including a global minimum corporate tax rate of 15 percent, spearheaded by the G-20 and the Organization for Economic Cooperation and Development.
For Biden, the tax agreement—which brought together over 130 countries representing more than 90 percent of the planet’s GDP—is a particularly clear example of how his “foreign policy for the middle class” can successfully balance domestic and international objectives. The deal not only reestablished U.S. international engagement and protected U.S. companies from being unfairly taxed in other jurisdictions; it also advanced a key campaign promise to ensure that companies pay their fair share. Although the deal still requires U.S. congressional action and similar government approval in other countries, it nevertheless established the multilateral economic bona fides of the Biden administration.
The United States has also partnered with certain allies to coordinate their approaches to key global technology, economic, and trade issues. The U.S.-EU Trade and Technology Council, for example, was almost entirely designed to address the challenges posed by China’s state-led economic model and counter unfair trade practices that hurt American and European workers. The council is helping the United States and the European Union ensure that they have compatible technology standards and data protection, implement export controls on dual-use technology, and create investment screening protocols to protect against intellectual property and technology theft (which undermines competitiveness and national security).
Then, shortly after the Biden team began its second year in office, recalling the words of former British Prime Minister Harold Macmillan, events intervened: Russia invaded Ukraine. But nothing better illustrates the success of Biden’s work with U.S. allies than what happened before and directly after Russia’s invasion. In the lead-up to the war, the Biden team worked with its G-7 and additional European partners to prepare a coordinated menu of escalating coercive economic measures, both to deter an invasion and to prepare a concerted response for if a war took place. The United States also ramped up its energy security cooperation in the months leading up to the invasion, as Russia increasingly used gas exports as a coercive weapon against Europe. As a result, immediately after the invasion began, the United States and its allies were able to pull off an unprecedented degree of international coordination, rapidly imposing historically severe economic sanctions and export controls on a major economy.
Unlike the Biden administration’s determined efforts to rebuild bilateral trust and relationships, its attempts to reestablish leadership in international financial institutions—including the IMF, the World Bank, and regional multilateral development banks—have failed to gain traction. These institutions were expected to play a crucial role in advancing the administration’s international agenda, especially given the pressing need to contain the global economic fallout of COVID-19. And at first, the White House made good, supporting the historic Special Drawing Rights issuance to help low- and middle-income countries deal with the economic challenges posed by the pandemic.
Thereafter, however, the administration’s efforts stalled. Perhaps because the White House was disproportionately focused on its domestic agenda, it showed little interest in reforming the World Trade Organization, declined to appoint an American to the number two leadership position at the European Bank for Reconstruction and Development when given the opportunity last year, and replaced the top U.S.-held position at the IMF—the first deputy managing director—only after the institution’s leader was engulfed in a China-related data-rigging scandal. Crucially, Biden neglected to prioritize filling the unprecedented number of vacancies in key posts on the executive boards of international financial institutions and in the U.S. Treasury Department; the people in these posts are supposed to set vital international economic policies. As a result, Washington has struggled to advance its strategic economic interests through key multilateral institutions. It also neglected to promote a major priority of unions: advancing a global, worker-centric perspective within international institutions themselves.
Biden has also been unable to address China’s broad refusal to provide debt relief to poor countries. China is now the dominant creditor to developing states around the world, and when COVID-19 made debt repayment more difficult, the IMF and the World Bank proposed a G-20 “Common Framework” for debt relief, seeking to create a forum in which China could work constructively toward that end with the IMF and the Paris Club, a group of creditor countries that seek solutions to payment problems faced by debtor countries. But the effort largely failed, primarily because China refused to accept meaningful debt forgiveness or, in many cases, to even allow visibility into the nature and terms of its loans. China’s investment in countries around the world not only gives Beijing greater influence over the politics and economics of these debtor countries; it also gives it more control over the supply of key commodities and, increasingly, over the development of digital standards in Africa, Asia, and Latin America. With the Biden administration mainly disengaged from leadership at both the IMF and the World Bank, the United States missed the opportunity to use these institutions to push back against China’s intransigence. Meanwhile, the failure of Washington to demonstrate real interest in governance at these institutions has contributed to governance and morale issues that currently plague their broader effectiveness.
That’s not to say Biden has taken no formal, multilateral steps to try to counter Chinese economic leadership. In June 2021, his administration and the G-7 launched the Build Back Better World initiative, which will use financial support from members of the G-7 to help fund and coordinate infrastructure projects in the developing world. But although worthy of praise, Build Back Better World remains nascent and underfunded, especially compared with China’s enormous bilateral lending, estimated to have reached more than $500 billion.
The Biden team can count a few trade and investment wins in its first year, including temporarily resolving a 17-year dispute with the EU over subsidies to Airbus and Boeing. It also reached an agreement with the EU over steel and aluminum tariffs that creatively addressed both the United States’ and Europe’s concerns about Chinese overcapacity by linking the deal to greenhouse gas emissions. In addition, Washington found a union-friendly fix for Vietnam’s currency manipulation transgressions.
But the White House has had trade troubles. Indeed, overall, the Biden administration’s most glaring international economic policy failure has been its inability to articulate or advance a coherent strategic trade and investment policy in the Indo-Pacific. The Biden administration has not yet agreed on a new economic approach to its relationship with China, effectively maintaining the Phase One trade deal inherited from Trump. It has made little serious effort to address Washington’s underlying grievances with Chinese economic policy. What is most striking is how it has not seriously coordinated with Indo-Pacific countries on an economic strategy, in part because it has avoided even mentioning free-trade or investment agreements. In particular, it has declined to enter into any discussion of reengaging with the CPTPP.
The refusal to talk trade has exposed how failing to properly balance domestic and international interests can undermine longer-term strategic goals. While running for president, Biden promised the United Steelworkers in writing that he would not “enter into any new trade agreements until we’ve made major investments here at home”—part of his broader campaign to win back swing states and working-class voters. That pledge was both tragic and self-defeating; by foreclosing even the discussion of any new trade agreements, Biden squandered the United States’ best opportunity to make the international economic order more friendly to the American middle class and to advance crucial U.S. foreign policy interests. As the most attractive market economy in the world, the United States can use trade negotiations to get countries to change their standards, rules, and norms, in part by promising increased market access. That means there are enormous strategic and economic benefits to at least reentering the debate over whether the United States should join the CPTPP, so as to present an alternative to China’s increasing dominance over Asian trade (which is bad for both U.S. workers and U.S. foreign policy). And yet the Biden administration has effectively forbidden any suggestion that joining the CPTPP might, in fact, be the single most significant step the country could take to advance its foreign policy for the middle class.
There are spillover effects. In September 2021, China applied to join the CPTPP. Many of the agreement’s existing members, including countries in Latin America, are building better relations with Beijing as a result, preparing for the possibility that China will belong to the CPTPP, with the United States on the outside looking in. The White House knows this isn’t good, and it has belatedly tried to craft a new economic engagement strategy for Asia: the Indo-Pacific Economic Framework. But it focuses on largely amorphous objectives and consists of aspirational wish lists, mostly devoid of specifics. This initiative is neither a substitute for a free-trade agreement nor a serious attempt to reassert Washington’s influence over trade with, investment in, or the digital future of the Indo-Pacific.
After more than a year in office, Biden has advanced many critical international economic policy goals by aligning his administration’s foreign policy agenda with the interests of U.S. workers, achieving strategic national security objectives. He laid the groundwork for creating more resilient supply chains and transforming U.S. infrastructure in ways that will help underserved communities and the middle class. He rejoined the global community’s effort to transition away from fossil fuels. He repaired U.S. alliances, marshaling the democratic world to collectively respond to Russia after it invaded Ukraine.
Russia’s war against Ukraine and its subsequent isolation are likely to provide ample opportunity for the United States to cooperate even more with its allies, as well as a chance for Washington to broaden the circle of countries with which it can find common cause. Russian economic isolation represents a global economic structural shift of significant proportions, one that may lead to further economic and political decoupling, and the United States must be prepared to protect and advance its economic interests in this new paradigm.
China’s future role in this world remains uncertain. China’s neutrality, if not vaguely pro-Russian position, on the war in Ukraine has given Washington a chance to reassert its global leadership. It must now be willing to recognize these opportunities and find a way to address both more immediate domestic interests and longer-term strategic ones that can pay economic dividends for decades to come. To capitalize on this moment, the United States must be ready to embrace a more ambitious international economic policy that advances its and its allies’ standards of fair trade, commerce, and investment, especially in response to China’s increasingly aggressive international posture. That means a top priority for the administration must include a renewed focus on articulating a comprehensive economic strategy for China, including a concrete, ambitious trade and investment agenda for the Indo-Pacific.
It won’t be easy for the Biden administration to reestablish U.S. economic leadership. Many middle-class Americans continue to blame globalization in general, and trade in particular, for their economic struggles. For Democrats, it does not pay to be seen as the party of pro-globalization, coastal elites. Biden will therefore need to work hard at explaining that free and fair trade can advance the interests of the middle class, of unions, and of workers. He should follow through on his promise to bring labor and environmental interests to the negotiating table. But cutting off U.S. trade engagement or believing the country has time to defer introducing an Indo-Pacific economic agenda will further cede turf to China—ultimately restricting markets and posing more risks to American workers, not less.
It does not pay to be seen as the party of pro-globalization, coastal elites.
Biden will also need to make good on promises to renew U.S. economic leadership in multilateral financial institutions, rather than letting them lose further credibility. These institutions can amplify U.S. influence, and the White House should make engaging with them a priority. That means it cannot pass up future opportunities to nominate strong, qualified U.S. candidates for traditionally U.S.-held leadership positions at these organizations.
Working with the IMF and the World Bank will be key. Food insecurity, inflation, rising interest rates, and massive levels of debt in low-income countries threaten financial stability, especially in developing markets, and the IMF and the World Bank can help the world manage and mitigate the risks. The White House should exert pressure on the IMF and the World Bank to abide by their own rules on debt sustainability. It must also be prepared to demand that China provide transparency and appropriate debt relief to poor countries that fall into debt distress. It should prioritize initiatives, such as Build Back Better World, that challenge China’s lending and investment leadership. This will be particularly important when it comes to helping states with the transition to green energy.
Finally, the Biden administration must manage the economic and political consequences of the war in Ukraine. The invasion has upended many of the underlying assumptions of Biden’s proposed foreign policy for the middle class. At the same time, it challenges China’s rise, and in that way, it presents an opportunity for Biden to make up for lost time, including by moving past some of the political impediments—such as domestic opposition to joining the CPTPP—that have stood in the way of smart international choices. This opportunity could help Biden, and the United States, secure a win-win: an international economic policy agenda that strikes the appropriate balance between workers’ interests at home and the country’s strategic interests abroad.