Weak global economy at risk as US and China seek to defuse tensions at APEC summit

WASHINGTON — The United States and China are two of the world’s largest economies. Together, they produce more than 40% of the world’s goods and services.

So, as Washington and Beijing engage in economic warfare, as has been the case for five years running, the rest of the world suffers. When Presidents Joe Biden and Xi Jinping hold a rare high-level summit, as they will this week, it can have global consequences.

The global economy could certainly benefit from the US-China ban. Since 2020, it has faced one crisis after another – the COVID-19 pandemic, soaring inflation, rising interest rates, violent conflicts in Ukraine and now Gaza. According to the International Monetary Fund, the global economy is expected to grow at a sluggish 3% this year and 2.9% in 2024.

„The fact that the world’s two largest economies are at loggerheads at such a critical moment amplifies the negative impact of the various geopolitical shocks that have hit the global economy,” said Ishwar Prasad, senior professor of trade policy at Cornell University.

There is hope that Washington and Beijing can at least ease their economic tensions at the Asia-Pacific Economic Cooperation summit that begins Sunday in San Francisco. The meeting will bring together 21 Pacific Rim countries that collectively represent 40% of the world’s population and nearly half of world trade.

Wednesday’s Biden-Z meeting on the sidelines of the summit was the first time the two leaders have spoken in a year, during which tensions between the two countries have worsened. The White House has sought to temper expectations, saying not to expect improvements.

At the same time, Prasad suggested that the threshold for declaring a successful outcome is relatively low. „Preventing further deterioration in the bilateral economic relationship would already be a win for both sides,” he said.

The US-China economic relationship had been deteriorating for years before erupting into a full-blown trade war in 2018 at the instigation of President Donald Trump. The Trump administration accused China of opening its vast market to the United States and other foreign companies that wanted to sell their goods and services by joining the World Trade Organization in 2001.

In 2018, the Trump administration began imposing tariffs on Chinese imports to punish Beijing in an effort to shift U.S. technology dominance. Many experts agreed with the administration that Beijing has engaged in cyber espionage and has improperly demanded that foreign companies hand over trade secrets as the price for access to the Chinese market. Beijing hit back against Trump’s sanctions with retaliatory tariffs of its own, making American goods more expensive for Chinese buyers.

Chairman of the Senate Intelligence Committee, Sen. Mark Warner said the US should continue to pressure China on intellectual property theft and seek the support of allies in the region. „National security now is not about who has the most tanks and guns and ships and planes. It’s about who’s going to win the war over artificial intelligence, quantum computing, advanced telecommunications, 5G and beyond,” Warner, D-Va., told Fox News. said in Sunday”.

When Biden took office in 2021, he kept much of Trump’s confrontational trade policy, including tariffs on China. The U.S. tariff rate on Chinese imports is now as high as 19%, up from 3% at the start of 2018 before Trump imposed his tariffs. Likewise, Chinese import tariffs on U.S. goods have ranged from 8% to 21% 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 and strengthen partnerships with other Asian countries as Covid-19 disrupts global supply chains. As part of that policy, last year the Biden administration created the Indo-Pacific Economic Framework for Prosperity with 14 countries.

In some ways, US-China trade tensions are even higher under Biden than they were under Trump. Beijing is chafing at the Biden administration’s decision to impose — and later expand — export restrictions designed to prevent China from buying advanced computer chips and the equipment to manufacture them. In August, Beijing faced its own trade barriers: Chinese exporters of gallium and germanium, metals used in computer chips and solar cells, must obtain government licenses to ship those metals overseas.

Beijing has also taken aggressive measures against foreign companies in China. Planning what appeared to be a counter-espionage campaign, its officers this year raided the Chinese offices of American consulting firms Capvision and Mints Group, Bain & Co. The consultancy’s Shanghai employees announced a security review of chipmaker Micron.

Some analysts speak of a „disconnection” of the world’s two largest economies after decades in which they were deeply dependent on each other for trade. In fact, imports of Chinese goods to the US through September fell 24% compared to the same period in 2022.

The split between Beijing and Washington has left many countries in a delicate dilemma: deciding which side they are on when it comes to actually doing business with both countries.

The IMF says such economic „fragmentation” is harming the world. The 190-nation credit agency estimates that $7.4 trillion will be deducted from global economic output after the world adjusts to high trade barriers.

And those barriers are increasing. Last year, the IMF said, countries imposed nearly 3,000 new restrictions on trade, down from less than 1,000 in 2019. The firm expects international trade to grow by 0.9% this year and 3.5% in 2024 – sharply lower than the 2000-2019 annual average. 4.9%.

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 to try to set the stage for the Biden-Chi summit.

„Our mutual desire — both China and the United States — is to create a level playing field and continue to build meaningful and mutually beneficial economic relationships,” Yellen said.

Xi has reason to try to restore economic cooperation with the United States. The Chinese economy is in dire straits. Its real estate market has slumped, youth unemployment is high and consumer enthusiasm is low. Crackdowns on foreign businesses have spooked international companies and investors.

„Xi needs to convince investors that China is still a profitable place to do business, given the serious headwinds in the Chinese economy and many American companies packing their bags and leaving China,” said Asia Society Institute and Vice President Wendy Cutler. Former US trade negotiator. „It won’t be an easy sell.”

The tensions between Washington and Beijing go beyond economics, complicating matters. Under Xi, the Chinese Communist Party punished dissent in Hong Kong and the autonomous Muslim region of Xinjiang. His government has made aggressive territorial claims in Asia, engaged in deadly border disputes with India and bullied the Philippines and other neighbors over parts of the South China Sea it claims as its own. It has increasingly threatened Taiwan, which it views as a renegade Chinese province.

US-China tensions could intensify next year with presidential elections in Taiwan and the United States, where criticism of Beijing has united Democrats and Republicans in some quarters.

Xi’s policies appear to cost China a battle for world opinion. In a recent survey of people in 24 countries, the Pew Research Center reported that the United States was viewed more favorably than China in all but two (Kenya and Nigeria).

Can China change course?

Speaking at the Center for Strategic and International Studies in Washington, Illinois Democrat Rep. Raja Krishnamurthy, optimistically noted, Xi has reversed himself before — announcing a sudden end to particularly brutal acts. Zero-Covid policies that crippled China’s economy last year.

„We have to provide that opportunity, while at the same time we protect and defend our interests,” Krishnamurthy said. „I believe we will come out of this meeting.”