WASHINGTON, D.C.: 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 an economic battle, 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 US-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 3 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 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.
The US-China economic relationship had been deteriorating for years before it erupted in 2018 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 US 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 US 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 US 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 US tax rate on Chinese imports now exceeds 19 percent versus 3 percent at the start of 2018, before Trump imposed his tariffs.
Likewise, Chinese import taxes on US goods are up to 21 percent, from 8 percent before the trade war began, according to calculations by Chad Bown of the Peterson Institute for International Economics.
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. In some ways, US-China trade tensions are even higher under Biden than they were under Trump.
Beijing is seething over the Biden administration’s decision to impose 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 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 US consulting firms Capvision and the Mintz Group, questioned Shanghai employees of the Bain & Co. consultancy and announced a security review of the chipmaker Micron.
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 are on when they actually want to do business with both countries.
The IMF says such economic “fragmentation” is damaging to the world. The 190-country lending agency estimates that higher trade barriers will subtract $7.4 trillion from global economic output after the world has adjusted to the higher trade barriers.
And those barriers are rising. Last year, the IMF said, countries imposed nearly 3,000 new restrictions on trade, up from fewer than 1,000 in 2019. The agency foresees international trade growing just 0.9 percent this year and 3.5 percent in 2024.
The Biden administration insists it is not trying to undermine China’s economy. On Friday, Treasury Secretary Janet Yellen met with her Chinese counterpart, Vice Premier He Lifeng, in San Francisco and sought to set the stage for the Biden-Xi summit.
“Our mutual desire — both China and the United States — is to create a level playing field and ongoing, meaningful and mutually beneficial economic relations,” Yellen said.
Xi has reason to try to restore economic cooperation with the United States. The Chinese economy is under heavy strain. Its real estate market has collapsed, youth unemployment is rampant, and consumer spirits are low. The raids on foreign businesses have spooked international companies and investors.
“With serious headwinds facing the Chinese economy and many US firms packing up their bags and leaving China, Xi needs to convince investors that China is still a profitable place to conduct business,” said Wendy Cutler, vice president of the Asia Society Institute and a former US trade negotiator.