Biden’s administration has taken an even more hawkish stance on China compared to what most expected. While economists at Danske Bank do not expect any disruptive measures to be taken by either side in the near-term, the gradual decoupling and Cold War sentiment is set to continue.

Tensions to continue but no near-term disruptive measures

“In the US the negative view of China is bi-partisan and shared by the population. And to some extent, Democrats and Republicans compete on who is the toughest on China.” 

“On the Chinese side, it is unlikely that it will give in to US demands for changes. China believes its’ system is more effective in solving problems and meeting challenges and it comes from a collectivist origin that goes thousands of years back, which China is increasingly proud of.” 

“While we don’t expect the Biden administration to take any disruptive measures, such as a new trade war, the path of gradual decoupling measures such as rising tech restrictions on China and self-sufficiency measures in new sectors (such as biotech) is set to continue. Human rights-related sanctions may also increase.”

“China will work on decoupling by seeking more self-reliance and investing heavily in tech and increasing energy and food security.” 

“Tensions are also likely to stay elevated around Taiwan where a new status quo with a very high level of tension is the new normal.”