Biden Plans to Build a Grand Alliance to Counter -2-

"You take steps that no one else is willing to take and they follow you, " said the official. "It's like a slinky moving down a staircase."

And Western nations fear alienating Beijing and its market. The EU completed a bilateral investment deal with China in late December after seven years of negotiation. That put Mr. Xi in a stronger position with the new U.S. administration and served as reminder that it couldn't take European support for granted.

Mr. Sullivan seemed to acknowledge the changed circumstance in a Dec. 21 tweet before the deal was finished: "The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China's economic practices."

To get European nations on board, the U.S. would need to lift steel tariffs imposed by the Trump administration, said trade experts. But backing off would outrage some of industrial unions and their Democratic backers.

China's agenda

Beijing is pursuing its own multilateral agenda to further draw U.S. allies into its economic orbit. Beijing once preferred dealing one-on-one with trading partners, figuring its economy would give it an edge. The trade battle with the Trump administration has prompted a rethinking.

Mr. Xi sees multilateral approaches as more productive, Chinese officials said. China has stepped up efforts to work through international organizations including the WTO and United Nations. "If you control the rules," said an official with knowledge of the leadership's thinking, "you can control the game."

In addition, China has offered to share its Covid-19 vaccines with African nations in a bid to uphold itself as a benevolent world power.

In November, Beijing signed a regional trade pact, the Regional Comprehensive Economic Partnership, with 14 other nations, including Japan, South Korea and Australia. Beijing's interest in completing the pact grew with each trade sanction from the Trump administration.

Chinese officials would tell Japanese counterparts their trade deals gave them leverage over the U.S. by giving Tokyo alternative markets, said an Asian diplomat involved in the talks. "They now look at RCEP as their leverage over the U.S.," the diplomat said, because the pact will boost trade between China and its member countries even if the U.S. continues to weaken its economic ties to China.

Recently, Mr. Xi said China would "favorably consider" joining an 11-nation Asia-Pacific trade pact the Obama administration championed, the Comprehensive and Progressive Trans-Pacific Partnership. That agreement would require China to allow free flows of data across its borders and revamp its state-owned companies -- the kind of changes the Trump administration couldn't get Beijing to accept in bilateral trade talks.

In 2017, Mr. Trump pulled the U.S. out of an early version of the deal, then called simply the Trans-Pacific Partnership, complaining it was a job killer. The pact has become so toxic with labor unions and Democratic lawmakers that Mr. Biden says it needs to be renegotiated before he would consider joining.

Beijing is capitalizing on the irony of considering joining a pact with standards set by U.S. negotiators but rejected by a U.S. president. Skeptics question Beijing's willingness to make the necessary changes, saying it could be a way to tie up the West in negotiations.

Mr. Xi does see it in his interest to revive a working relationship with the U.S. president, according to Chinese officials. As he tries to ensure a tradition-busting third term, they said, he knows he will be judged internally on how he handles U.S. relations.

Still, Beijing is eyeing the new administration warily, seeing Mr. Biden's reference to Mr. Xi as a "thug" as a warning sign, said Chinese officials. While Mr. Xi wants to improve relations, he has also made it clear he is intent on building Chinese power and modernizing its economy.

From Mr. Xi's perspective, sovereignty issues take precedence. He has asserted control over Hong Kong and Xinjiang -- both of which China considers internal issues -- despite criticism from abroad and has empowered his diplomats to strike back forcefully against anyone seen as smearing the country.

The biggest potential flashpoint remains Taiwan, which China views as a renegade province. Last year, the Chinese military stepped up exercises targeting the island, but there is no sign Beijing is preparing an invasion.

Tariff tensions

Mr. Biden must fit the tariff conundrum into his new-multilateralism strategy. The Trump administration assessed tariffs on $370 billion of Chinese goods, three-quarters of what China sends the U.S. annually, during a two-year trade war. That culminated in a deal signed a year ago in which China agreed to dramatically increase purchases of U.S. goods, although it has so far fallen short of its pledged shipments.

The Business Roundtable, an association of America's largest companies, and other business groups -- China's traditional allies in Washington -- want Mr. Biden to use tariff elimination to get concessions from China on issues that eluded the Trump administration, including subsidies for Chinese firms and predatory behavior by state-owned companies.

The Biden team hasn't made commitments to new talks. That is yet another thing for Mr. Biden to discuss with allies first, Mr. Sullivan said: "He's not going to lock himself into a particular approach."

One question is whether Mr. Biden will accept calls by former Clinton Treasury Secretary Larry Summers and others to hold an early Group-of-20 leaders' summit to hammer out ways to boost the global economy and deal with the pandemic. That would be modeled on the G-20 session Mr. Obama organized shortly after he took office in 2009 to combat the financial crisis.

A G-20 would give a starring role to China and probably include an early meeting of the Presidents Biden and Xi. The outreach would suggest a different direction in U.S. policy than a united front against Beijing.

Charlene Barshefsky, the former Clinton Trade Representative who negotiated China's entry into the WTO, warns against an early Biden-Xi meeting. "Given the strategic implications -- bilateral, regional, and global," she said, "this is a complex exercise, not a photo op."

--Rajesh Roy in New Delhi, Laurence Norman in Brussels and Jacob M. Schlesinger in Washington, D.C., contributed to this article.

Write to Bob Davis at [e-mail] and Lingling Wei at [e-mail]

(END) Dow Jones Newswires

01-06-21 1435ET