How to reset the relationship between the U.S. and China

When President-elect Joseph R. Biden Jr. moves into the White House, he will inherit a relationship with China that is at its lowest point in decades. Among the issues on his to-do list are tariffs, which he has said he plans to maintain when he takes over; how to handle human rights violations in China’s Xinjiang region; and a tech Cold War that has raised questions over data, sovereignty and power.

All the while, Mr. Biden will be rebuilding an economy laid low by the pandemic. That could make focusing on foreign matters more fraught, especially a relationship in need of as much repair work as the one with China.

As part of the DealBook D.C. Policy Project, The New York Times gathered a virtual panel of experts in early December to discuss the state of U.S.-China relations today, and how they might change during the Biden administration.

The participants:

• Damien Ma, director of MacroPolo at the Paulson Institute

• Winston Ma, adjunct professor at New York University School of Law

• Dina Powell McCormick, global head of sustainability and inclusive growth at Goldman Sachs

• James McGregor, chairman of Greater China at APCO Worldwide

• Andy Purdy, chief security officer at Huawei Technologies USA

• Samm Sacks, cybersecurity policy and china digital economy fellow at New America and fellow at Yale Law School’s Paul Tsai China Center

• Faiza J. Saeed, presiding partner at Cravath, Swaine & Moore

• Mark Shafir, co-head of global mergers and acquisitions at Citigroup

• Moderated by Rebecca Blumenstein, The Times’s deputy managing editor

Mr. Biden won’t let up on China, but will be selective in picking fights.

The panelists generally agreed that Mr. Biden will be tough on China, continuing the path set by President Trump. “I think style will change. Substance, in the short term, is likely to stay the same,” said Dina Powell McCormick of Goldman Sachs. “Over the medium and long term, I think that he’s inherited a relationship that’s very different than the one he had four years ago, or during the Obama-Biden administration. I think it’s a unique opportunity.”

That opportunity could entail Mr. Biden choosing to be more collaborative with China on things like climate change and vaccine distribution, in hopes of gaining more leverage in the areas, like technology, where he wants the United States to compete more aggressively with China.

Mr. Biden “is going to continue to take a hard line,” said Samm Sacks of New America and the Yale Law School, but will adopt “a more targeted approach,” asking “where does genuine national security risk exist and then coming up with solutions to solve for that.”

The battle over tech supremacy will also be fought far from Beijing and Washington.

Ms. Sacks warned against focusing too closely on the United States and China alone. “The tech competition between China and the U.S. is increasingly not going to play out in each other’s countries. It’s going to play out in other parts of the world,” she said.

“Biden is coming in talking a big game about working with allies and partners at a moment when the digital divide between Europe and the U.S. could not be deeper,” she added. “And I think that’s going to have to be one of his first orders of business: to resolve the digital chasm with Europe.”

Part of a cross-country collaboration may involve creating an international framework to deal with challenges like how to protect data flows, said Andy Purdy, the chief security officer of Huawei Technologies U.S.A. “We have to ramp up the efforts collaborating with our partners to have independent conformance and independent testing programs, so we have some objective basis for knowing which products and services are worthy of trust,” he said. “We need to collaborate, globally, to improve the capabilities for security and assurance and the capabilities for transparency.”

Talking about the U.S.-China relationship requires talking about industrial policy.

In describing the state of the play, “it’s American underperformance versus Chinese overreach,” said James McGregor of APCO Worldwide. “China went too far and even pushed business away, and we have just been pretty lame here in investing in ourselves.”

Faiza Saeed of Cravath, Swaine & Moore said American and Chinese companies were not competing on a “level playing field,” with China’s favored firms getting more backing from their government than rivals in the United States. This is not what many expected when China opened up its economy to the world, she said:

“Western democracies thought that opening up to China was going to change China, and what we’ve seen over the last 20 years is that we’ve been changed. And there are all these forces that are undercutting cohesion in our own society that are not China’s fault. China has always been focused on its own growth and independence, and protecting its independence, but we didn’t get what we thought we were going to get from opening up and looking the other way.”

That said, for American policymakers the answer is not necessarily to “become more like China to beat China,” said Damien Ma of the Paulson Institute:

“If you look at what the Chinese are doing, they’re actually getting less into industrial policy because they’ve realized that has produced more bubbles and more cost than it’s been worth. Yes, they got batteries. Yes, they got solar panels. But it’s been a very mixed success. So even in China, they’re questioning how much they want to push industrial policy.”

Look to the semiconductor industry to gauge of the balance of power.

Winston Ma of the N.Y.U. law school, who previously ran the North American office of China’s sovereign wealth fund, the China Investment Corporation, said that semiconductors was an industry in which China’s industrial policy might have met its match. The government continues to support it, but he has not seen private venture capital pour in at the same pace as with artificial intelligence, for example. The unexpected loss of a top player of the Chinese game “Go” to software developed by Google in 2017 captured a lot of attention, and now “you have lots of A.I. start-ups trying to compete with the U.S.,” he said.

That he doesn’t see the same enthusiasm from the private sector for semiconductors is a “good indication that it is still very much a government-led push, compared to something that the market feels there’s a chance.”

The global semiconductor industry is going through a phase of consolidation, which recently included Nvidia’s $40 billion acquisition of Arm. The deal would require Chinese regulators’ approval because it would have a big impact on the market there, and Beijing’s resistance to blessing Qualcomm’s $44 billion deal for NXP amid the depths of a trade war with the United States two years ago led to the deal’s collapse.

“People are putting significant money where their mouth is,” said Mark Shafir, a top deal maker at Citigroup, referring to the boldness of Nvidia’s bid despite the potential geopolitical pitfalls. On the risk of American companies trying to consummate deals during such a fraught period in U.S.-China relations, Mr. Shafir described the mood as “it was time to try to do some things, and there was one C.E.O. who told me: ‘I don’t know how much worse it can get.’”

“I hope that we’re at the nadir of this, but I can’t sit there as a deal practitioner and say with any degree of certainty it’s going to get a hell of a lot better,” he added, noting the White House’s blacklisting of Chinese tech firms and the arrest of Huawei’s chief financial officer in Canada at the request of the United States.

He doesn’t see the prospects for a lowering of tensions soon. “I do believe ultimately that there will be some market rationality here, but it’s not happening in 2021,” he said. “We’re in a ‘just say no world,’ and that’s got to change.”

And in the end, follow the money.

American financial giants like BlackRock and Goldman Sachs have recently expanded in China after being allowed to take majority control of local divisions for the first time. In letting them in, Mr. McGregor said, Beijing might have other motives in mind, revealing the multilayered diplomacy that will establish the relationship between the two countries for years to come:

“China does not do anything that’s not in its own complete self-interest. Allowing American companies in there right now and giving them a sliver of the market is good because it will help with best practices, and they need help in learning how to manage people’s money and help with their investments. But also they know that the financial services industry is America’s most politically powerful industry, and if they give all these big companies a sliver of the market, they will be in Washington telling regulators: ‘Don’t you do anything against China because you’ll hurt my market share.’”