Fragile global economy at stake as US, China seek to cool tensions

MEETING. U.S. President Joe Biden (right) stands with Chinese President Xi Jinping before a meeting on the sidelines of the G20 summit on Nov. 14, 2022, in Bali, Indonesia. The two leaders will meet this week on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco./ AP
MEETING. U.S. President Joe Biden (right) stands with Chinese President Xi Jinping before a meeting on the sidelines of the G20 summit on Nov. 14, 2022, in Bali, Indonesia. The two leaders will meet this week on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco./ APAlex Brandon

WASHINGTON — The United States and China are the two global economic heavyweights. Combined, they produce more than 40 percent of the world’s goods and services.

So when Washington and Beijing do economic battle, as they have for five years running, the rest of the world suffers, too. And when they hold a rare high-level summit, as Presidents Joe Biden and Xi Jinping will this week, it can have global consequences.

The world’s economy could surely benefit from a U.S.-China détente. Since 2020, it has suffered one crisis after another — the Covid-19 pandemic, soaring inflation, surging interest rates, violent conflicts in Ukraine and now Gaza. The global economy is expected to grow a lackluster three percent this year and 2.9 percent in 2024, according to the International Monetary Fund.

“Having the world’s two largest economies at loggerheads at such a fraught moment,” said Eswar Prasad, senior professor of trade policy at Cornell University, “exacerbates the negative impact of various geopolitical shocks that have hit the world economy.”

Hopes have risen that Washington and Beijing can at least cool some of their economic tensions at the Asia-Pacific Economic Cooperation summit, which starts Sunday in San Francisco. The meeting will bring together 21 Pacific Rim countries, which collectively represent 40 percent of the world’s people and nearly half of global trade.

Biden-Xi meeting

The marquee event will be the Biden-Xi meeting Wednesday, Nov. 15 on the sidelines of the summit, the first time the two leaders will have spoken in a year, during which time frictions between the two nations have worsened. The White House has sought to tamp down expectations, saying to expect no breakthroughs.

The U.S.-China economic relationship had been deteriorating for years before it erupted in 2018, at the instigation of President Donald Trump, into an all-out trade war. The Trump administration charged that China had violated the commitments it made, in joining the World Trade Organization in 2001, to open its vast market to U.S. and other foreign companies that wanted to sell their goods and services there.

In 2018, the Trump administration began imposing tariffs on Chinese imports to punish Beijing for its actions in trying to supplant U.S. technological supremacy. Many experts agreed with the administration that Beijing had engaged in cyberespionage and had improperly demanded that foreign companies turn over trade secrets as the price of gaining access to the Chinese market. Beijing punched back against Trump’s sanctions with its own retaliatory tariffs, making U.S. goods more expensive for Chinese buyers.

When Biden took office in 2021, he kept much of Trump’s confrontational trade policy, including the China tariffs. The U.S. tax rate on Chinese imports now exceeds 19 percent, versus three percent at the start of 2018, before Trump imposed his tariffs. Likewise, Chinese import taxes on U.S. goods are up to 21 percent, from eight percent before the trade war began, according to calculations by Chad Bown of the Peterson Institute for International Economics.

Reducing reliance

One of the tenets of Biden’s economic policy has been to reduce America’s economic reliance on Chinese factories, which came under strain when Covid-19 disrupted global supply chains, and to solidify partnerships with other Asian nations. As part of that policy, the Biden administration last year forged the Indo-Pacific Economic Framework for Prosperity with 14 countries.

In some ways, U.S.-China trade tensions are even higher under Biden than they were under Trump. Beijing is seething over the Biden administration’s decision to impose — and then broaden — export controls that are designed to prevent China from acquiring advanced computer chips and the equipment to produce them. In August, Beijing countered with its own trade curbs: It began requiring that Chinese exporters of gallium and germanium, metals used in computer chips and solar cells, obtain government licenses to send those metals overseas.

Beijing’s actions

Beijing has also taken aggressive actions against foreign companies in China. Orchestrating what appears to be a counterespionage campaign, its authorities this year raided the Chinese offices of the U.S. consulting firms Capvision and the Mintz Group, questioned Shanghai employees of the Bain & Co. consultancy and announced a security review of the chipmaker Micron.

‘Decoupling’

Some analysts speak of a “decoupling’’ of the world’s two biggest economies after decades in which they relied deeply on each other for trade. Indeed, imports of Chinese goods to the United States were down 24 percent through September compared with the same period of 2022.

The rift between Beijing and Washington has forced many other countries into a delicate predicament: Deciding which side they’re on when they actually want to do business with both countries.

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