WASHINGTON — The United States and China are the two largest economic powers in the world. Together they produce over 40% of the world’s goods and services.
Therefore, if the United States and China engage in economic war, as they have for five years in a row, the rest of the world will also suffer. And holding an unusual high-level summit, as Presidents Joe Biden and Xi Jinping will do this week, could have global implications.
The global economy could certainly benefit from easing tensions between the United States and China. Since 2020, it has been hit by one crisis after another, including the COVID-19 pandemic, soaring inflation, soaring interest rates, and violent conflicts in Ukraine and now Gaza. The global economy is expected to grow at a lackluster 3% this year, rising to 2.9% in 2024, according to the International Monetary Fund.
Eswar Prasad, a senior professor of trade policy at Cornell University, said: “The fact that the world’s two largest economies are at odds during these difficult times reflects the negative effects of the various geopolitical shocks hitting the global economy.” It’s making it even worse.”
The Asia-Pacific Economic Cooperation summit, which begins in San Francisco on Sunday, is raising hopes that the United States and China will be able to reduce at least some economic tensions. The conference will bring together 21 Pacific Rim countries, which account for 40% of the world’s population and almost half of global trade.
The most notable event will be the Biden-Xi meeting to coincide with Wednesday’s summit, which will be the first time the two leaders have met in a year, during which friction between the two countries has worsened. The White House is trying to dampen expectations, saying there is no hope for a breakthrough.
At the same time, Prasad suggested that the bar for declaring successful results is relatively low. “Preventing further deterioration of bilateral economic relations would already be a win for both sides,” he said.
Economic relations between the United States and China had been deteriorating for years, but erupted into an all-out trade war in 2018 at the instigation of President Donald Trump. The Trump administration accused China of violating a promise made when it joined the World Trade Organization in 2001 to open vast markets to U.S. and other foreign companies that wanted to sell their goods and services.
In 2018, the Trump administration began imposing tariffs on Chinese imports to punish Beijing’s actions to take away America’s technological advantages. Many experts agreed with the administration that the Chinese government had engaged in cyberespionage and unfairly required foreign companies to hand over trade secrets in exchange for gaining access to the Chinese market. Beijing has responded to President Trump’s sanctions with its own retaliatory tariffs, making American goods more expensive for Chinese buyers.
When Biden took office in 2021, he maintained many of President Trump’s confrontational trade policies, including tariffs on China. The U.S. tax rate on imports from China was 3% in early 2018, before President Trump imposed tariffs, but now it is more than 19%. Similarly, China’s import taxes on U.S. goods are up to 21%, up from 8% before the trade war began, according to calculations by Chad Bown of the Peterson Institute for International Economics.
One tenet of Biden’s economic policy is to reduce U.S. economic dependence on Chinese factories, which have been strained as the coronavirus pandemic disrupted global supply chains, and to build partnerships with other Asian countries. It is to strengthen. As part of that policy, the Biden administration last year established the Indo-Pacific Economic Framework for Prosperity with 14 countries.
In some ways, U.S.-China trade tensions have increased even more under the Biden administration than they did under the Trump administration. Beijing is furious at the Biden administration’s decision to impose and expand export controls aimed at blocking China’s acquisition of advanced computer chips and the equipment to make them. In August, the Chinese government responded with its own trade restrictions, requiring Chinese exporters of gallium and germanium, metals used in computer chips and solar cells, to obtain government permission to send the metals overseas. began to be mandatory.
The Chinese government is also taking aggressive action against foreign companies operating in China. Organizing what appears to be an anti-espionage operation, authorities this year raided the Chinese offices of U.S. consulting firms CapVision and Mintz Group, interrogated Shanghai employees of consulting firm Bain & Co., and arrested semiconductor manufacturers. Announced Micron’s safety investigation.
Some analysts speak of a “decoupling” of the world’s two largest economies after decades of being deeply dependent on each other for trade. In fact, imports of Chinese goods into the United States were down 24% through September compared to the same period in 2022.
The rift between China and the United States has put many other countries in a delicate predicament. In other words, deciding which side to side with when you actually want to do business with both countries.
The IMF says this economic “fragmentation” is damaging the world. Financial institutions from 190 countries estimate that higher trade barriers will subtract $7.4 trillion from global economic output after the world adjusts to them.
And those barriers are rising. Last year, countries imposed nearly 3,000 new restrictions on trade, up from less than 1,000 in 2019, the IMF said. The IMF expects international trade to grow by just 0.9% this year and 3.5% in 2024, a sharp decline from the previous year. The annual average from 2000 to 2019 was 4.9%.
The Biden administration insists it is not trying to undermine China’s economy. On Friday, Treasury Secretary Janet Yellen met with Chinese Vice Premier He Lifeng in San Francisco to set the stage for the Biden-Xi summit.
“Both China and the United States share a common desire to level the playing field and build a continuing, meaningful and mutually beneficial economic relationship,” Yellen said.
Mr. Xi also has reasons to try to restore economic cooperation with the United States. China’s economy is under great stress. The real estate market is collapsing, youth unemployment is widespread, and consumer confidence is waning. The raids on foreign companies have spooked international companies and investors.
“As China’s economy faces serious headwinds and many U.S. companies are packing up and leaving China, President Xi believes that China remains a profitable place to do business,” said Wendy Cutler, deputy director of the Asian Society Research Institute. “We need to convince investors of this.” Former US trade negotiator. “This is not going to be an easy sell.”
Complicating matters, tensions between the United States and China go far beyond economic issues. Under Xi, the Chinese Communist Party has punished dissidents in Hong Kong and the Islamic autonomous region of Xinjiang. The regime has made aggressive territorial claims in Asia, sparked deadly border clashes with India and bullied the Philippines and other neighbors over parts of the South China Sea it claims as its own. China has increasingly threatened Taiwan, which it views as a rebellious province.
Next year’s presidential elections in Taiwan and the United States could further escalate tensions between the two countries, where criticism of China is one of the few areas that unites Democrats and Republicans.
Mr. Xi’s policies appear to be hurting China in the battle for world opinion. In a recent survey of people in 24 countries, the Pew Research Center found that the United States was viewed more favorably than China in all but two countries (Kenya and Nigeria). did.
Is there a possibility that China will change its policy?
Rep. Raja Krishnamoorthi, an Illinois Democrat who serves on the House committee that oversees China, said in a speech at the Center for Strategic and International Studies think tank in Washington that Xi has changed his tune before, especially He optimistically noted that he had declared a sudden end to the rigid state system. The zero-corona virus policy hit China’s economy hard last year.
“We have to hedge and protect our interests and at the same time give that potential a chance,” Krishnamoorthi said. “That’s what I hope we get out of this meeting, too.”