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US presidential candidates Biden and Trump both vow to get tough on China.
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EIU predicts worsening US-China economic and diplomatic ties over the 2020s.
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EIU doesn’t expect US trade policies to significantly reduce China’s role in global production networks.
The US presidential election is less than six months away, and Democratic and Republican presidential nominee frontrunners Joe Biden and Donald Trump have both vowed to get tough on China.
Despite this, China will likely extend its reach in the global supply chain, the Economist Intelligence Unit, or EIU, wrote in a note on Tuesday.
The EIU, which is expecting Biden to retain the US presidency, expects “a sustained worsening” in economic and diplomatic ties between China and the US over this decade — regardless of who wins the election.
“Either president will pursue policies aimed at exerting further pressure on China’s technology sector, while also justifying future trade and investment restrictions based on national security concerns,” wrote the EIU analysts.
In April, President Biden called for a tripling of tariffs on Chinese steel and aluminum imports, echoing former President Donald Trump’s levies on a range of goods from China.
Trump said in February he would slap tariffs of over 60% on Chinese goods if he’s elected.
Should Biden win the presidency, he is expected to continue to continue working with like-minded governments.
“The primacy of US security and economic goals in Mr Biden’s diplomatic agenda will still ensure a degree of collateral damage to economies that have deep trade and investment linkages with China,” wrote the EIU analysts.
They added that if Trump wins the presidency, he is likely to take a “much more antagonistic approach” to the US-China relationship, which risks collateral damage to third-party economies.
“This would return bilateral diplomatic and trade relations to the state of volatility that characterized his first term,” the EIU analysts wrote.
However, the EIU said it doesn’t expect either Biden’s or Trump’s trade policies to reduce China’s role in global production networks significantly.
It is instead expecting the extension of China-linked supply chains via “capital-hungry markets” in Latin America and Southeast Asia.
“These same dynamics will ultimately make many of these emerging markets vulnerable to an escalation of trade hostilities with the US,” EIU’s analysts added.
As it is, Chinese manufacturers may already be skirting sanctions by using Mexico as a backdoor to get exports into the US.
Even Chinese manufacturers are shifting their production out of China to other low-cost manufacturing hubs in Asia, including Vietnam and Bangladesh, to avoid geopolitical risks.
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