The Emerging Biden Trade Policy: What’s in it for US SMEs?

Since USCBC’s 50 States, 50 Stories project launched in early 2021, we have been speaking with a diverse group of state-level stakeholders in US-China trade, mostly those who have decades of experience in US export businesses or a historical involvement in China. Overwhelmingly, we see that owners of American small to medium-sized enterprises (SMEs) are pragmatic and apolitical, they believe that China continues to be an important market for their businesses, and they are all for improving the bilateral relationship.

US Trade Representative Katherine Tai’s long-anticipated public remarks at the Center for Strategic and International Studies (CSIS) on October 4 laid the groundwork for the emerging Biden trade policy on China, paving the way for more high-level exchanges while stressing that tremendous uncertainties remain in the bilateral commercial future. But for American companies caught in the crossfire, comprehending government strategy is one thing, living through the everyday trade realities is another. Considering the three lessons learned in USCBC’s recent interviews with American SMEs and state-level trade organizations, does Biden’s China trade policy answer the long-voiced demands on the ground, or not?

Trading for commerce, not geopolitics

That SMEs need to keep trade flowing with China is a commercial reality.

As one interviewee told us, “we are an exporter to China, and I feel proud to sell our American-made food products to China and other overseas markets. The United States is advantaged in terms of high-quality ingredients and a high standard of food safety. Chinese customers recognize this and are willing to pay a premium which enables us to support American jobs.”

Trading for commerce is a quest for trust. This is hard to reconcile with Tai’s speech, which encouraged American companies to prioritize resilience over efficiency and, in the best-case scenario, “Buy American up and down the supply chain.” US trade with China is directly linked to 1.2 million American jobs and constituted 6.5 percent of total US goods and services exports in 2019. At the granular level, these numbers translate to the interests of workers, businesses, farmers, and producers. At the national level, socio-economic well-being and success are integral to the development of the US middle class—a core pillar in Biden’s Build Back Better agenda—and it would be a misstep to focus only on competition with China and look away from the enormous need for bilateral cooperation. 

In the short term, the federal government’s lack of support and avoidance of cooperation can be detrimental to American SMEs. As Washington presses on with a trade policy that is primed for geopolitics over commerce, what gets pinched is businesses’ everyday endeavors for diversity, opportunity, and cooperation.

Where there is a will, there is a way

In her answer to one of the questions raised by the moderator, Tai stated that US-China decoupling is not realistic, instead, the real issue is what the goals are in “recoupling.” Together with the new rhetoric of “durable coexistence,” her speech alludes to the Biden administration’s acknowledgment that US-China commercial relationship has global significance, hence the two countries must not stop trading with each other.

Conditions applied, recoupling comes with several asterisks. Beyond Phase One purchase commitments and structural market access issues that Tai aims to resolve with her Chinese counterparts, a “targeted” tariff exclusion process will be introduced to allow a differentiated approach to sectors in the economy where “we can no longer just wish for the best; we actually have to do something.”

To the American SMEs, recoupling, attached with conditions, leaves more questions than answers. 

Part of it is that many of them are already coupled. Rather than recoupling, they would prefer existing relationships be strengthened, not reinvented, while efforts are made to avoid unintentional decoupling through heavy-handed sanctions.

For the others, asterisked recoupling hardly translates to anything concrete. Cautiously welcoming this approach, they carry on with what the past few years have taught them to do—working hard, looking out for toeholds, strings, and falling rocks, and believing there is a way around everything.

In our conversations, we see a persistent pursuit for more business deals despite the political pressure. If there is a problem, they work hard to find a solution. As one state trade officer explains, there are lots of investment opportunities in China and the state trade office’s job is to figure out a way to uncover them for companies. Undeterred, many of the SMEs turn to resources available at the state level for additional matchmaking and financial supports.

A closer look at states reveals a trade ecosystem featuring an array of non-profit, for-profit, and local government actors. Providing technical assistance and an opportunity to network with others experiencing similar challenges, these trade support systems fledge up what is missing from the top. One of the interviewees expressed such communal feeling has been a supportive cushion for smaller companies: “This is why the role played by [states] is so important. We’re in the trenches. We see the opportunities, and we feel the pain.”

Businesses across all sectors need international markets to grow. If the force behind the re-investigation of Section 301 is the desperate need to help buffeted American SMEs, then targeted recoupling risks being too narrow than what the business communities have been advocating for.

Stories can often tell you more than facts and figures

Ironically, the topic of American SMEs was only raised once in this one-hour event with Tai, which happened during the open-floor Q&A. “We place a lot of weight in what we hear from our businesses, especially our small- and medium-sized businesses that certainly have been impacted by the tariffs. That is certainly why we are restarting a tariff exclusion process,” said Tai. 

The USTR has long recognized that issues of particular interest to SME exporters include customs and trade facilitation measures as well as reduction of regulatory barriers. Yet the gap between talking the talk and walking the walk is widening when it comes to China, and the emerging Biden trade policy does not seem to help.

How to get the ball rolling? Here is a word of advice: “They need to hear stories of the companies that have carried the trade relationship on their backs for decades.”

Some states have been working hard to broaden market access and deepen commercial ties with China at the subnational level. Trade offices on the west coast have been particularly active in leading business delegations across the pacific and participating in China’s major trade conferences. During the pandemic, the absence of traveling has been remedied by Zoom trade missions or other available B2B e-commerce platforms. Most of them express that they are in China for the long haul and have no plan of leaving soon.

At USCBC, we have continuously heard from member companies that they need to be successful in China to be successful in the world. The core rationale behind the 50 States, 50 Stories project is a recognition for the growing mismatch on the US-China trade debate between the mainstream political dialogue on facts and figures and the lived experiences of commercial and social interdependency. The stories of American SMEs are the real-life answers to why the US and China must aim for a stable and constructive trade relationship. Diverse and nuanced, they convey a clear message that the status quo has been hurting the interests of both countries, and certainty, close engagements, and collaborative reciprocities should be prioritized.

Bottom line: It takes two to tango

Tai’s repeated mentioning of the need to re-assess, re-establish, re-align the basis of the bilateral relationship, while showing a less belligerent temperament compared to the previous administration, echoes the mainstream consensus of an “inflection point” in the overall US-China relationship. Similarly, in his recent dialogue with USCBC board members, the Chinese Ambassador to the United States Qin Gang stressed that “the commercial relationship must thrive and grow while we work harder to resolve disagreements.” 

While Biden’s China trade policy unwraps and develops, the Chinese side needs to face the conditions attached to Tai’s gesture of recoupling: avoid import substitution, treat American companies equally, continue economic liberalization and capital market opening up, might be some viable ways to start. 

Half a century after Ping Pong Diplomacy, a new round of defining and building relationships has formally begun between the US and China. While USCBC continues to work with both governments to address member company issues and support the bilateral economic relationship, we encourage US and Chinese stakeholders at all levels to come together and forge a cooperative way forward.