When President Joe Biden took office in January 2021, there were expectations on both sides of the Pacific that he would withdraw from the trade war his predecessor started with China nearly three years earlier.
Frustrated by China’s huge trade surplus and accusing it of stealing U.S. intellectual property, former President Donald Trump slapped tariffs on $ 50 billion worth of Chinese goods in June 2018. Beijing thwarted with its own tariffs and spiral continued until a so-called truce was agreed in 2020.
Instead of undoing those measures, Biden has it has quietly escalated the trade conflict. In October, his administration imposed radical new limits designed to limit China’s access to the technology critical to its growing military might.
Against this backdrop of mounting competition and fears of a global recession, leaders of the world’s two largest economies will meet on the sidelines of the G20 Summit in Bali, Indonesia on Monday.
Speaking to reporters in Bali, US Treasury Secretary Janet Yellen said the meeting was meant to stabilize relations and expressed hope that it could lay the groundwork for bilateral economic engagement.
The stakes are high for both sides, as well as for the rest of the world. China, with its nearly $ 18 trillion economy, has been the main driver of global growth in recent years. But this year the Covid blockades and a real estate crisis have held back its expansion.
Although expectations for the meeting are low, it is crucial that the two sides re-engage, Mattie Bekink, Chinese director of the Shanghai-based Economist Intelligence Corporate Network, told CNN Business.
There have been regular lines of communication between US officials and their Chinese counterparts for decades, but most of those paths were cut off after House Speaker Nancy Pelosi visited Taiwan in July.
“It is important that the heads of state speak directly,” he said. “There is a lack of trust in this relationship. If Xi and Biden send the signal that it is time to resume communications, hopefully this will drop to the lowest levels. ”
In addition to trade, it was important for the two sides to work together on issues such as climate change and food security, he said.
Stabilizing a US-China economic relationship that is at such a low level will be difficult given the disappointed expectations on both sides, according to Dexter Roberts, a senior fellow at the Atlantic Council’s Asia Security Initiative, who publishes a newsletter on US affairs. China and economic relations called trade war.
“First of all, it was a big deal that Biden didn’t try to find a way to cut Trump’s $ 300 billion in tariffs, which many expected him to do,” he told CNN Business. “To Beijing’s shock and anguish, Biden has made things even more uncomfortable on the commercial side.”
Biden’s measures included: the October limit on the sale of advanced chips and chip manufacturing equipment, a ban on all goods produced in China’s Xinjiang region, blacklisting some Chinese companies, and the dozens of Chinese and Hong Kong officials for the Beijing repression of the special region administration.
In 2018, the Trump administration imposed a series of tariffs on hundreds of billions of dollars in Chinese goods such as solar panels, washing machines, steel and aluminum. China has responded by slapping its tariffs on iconic American products like Harley-Davidson and Jack Daniel’s.
Taxes imposed by the United States and the subsequent trade war helped slow the Chinese economy, but they also dented the profits of American companies, causing job cuts, higher prices and repercussions on household budgets, such as the economic analysis will demonstrate later.
In the “truce” of early 2020, Trump signed a “phase one” trade agreement with China under which Beijing promised to buy $ 200 billion more US exports than in 2017. China, however. , did not follow up and “did not buy any of the additional $ 200 billion of US exports committed under the agreement,” according to a report by the Peterson Institute for International Economics.
When Biden took office, he kept the Trump tariffs in place in part because China had not yet met those targets, despite pressure from American firms supporting rollbacks. However, as inflation began to rise to all-time highs, US officials, including Yellen, have argued with China to potentially raise some tariffs to help tame price hikes.
Bekink said he did not expect dramatic changes in trade flows to emerge following the Biden-Xi meeting. And the surplus in favor of China has not gone away.
According to the latest Chinese customs data, in the first ten months of this year, Chinese exports to the United States increased by 6.6% to $ 495 billion, compared to the same period in 2021. Chinese imports of American goods increased. only 0.3% over the same period to $ 145 billion.
The two leaders, however, are expected to discuss the Biden administration’s efforts to increase domestic semiconductor chip production, which it noted last month has already raised concerns about its Chinese counterpart.
“I heard from Xi Jinping that he is a little concerned about this,” Biden said at an event in Syracuse, New York, where he touted a $ 100 billion local investment in semiconductor manufacturing.
The pandemic has turned the spotlight on the negative side of America’s decades-long reliance on foreign chip manufacturing. The lockdowns and closures of factories in Asia, followed by a global increase in demand for microchips, have led to a severe shortage of crucial semiconductors needed by American industries, from automakers to cybersecurity to medical equipment.
The resulting production stoppages in auto plants have contributed to the skyrocketing price of new and used cars, fueling inflation which remains at its highest level since the 1980s.
The United States called the chip shortage a “national security” issue, and in August, President Biden signed the $ 200 billion CHIPS and Science Act, a five-year plan to increase domestic chip production, reduce costs, and reduce dependence on the global supply chain.
U.S. imports of semiconductors from China are 26% lower than before the imposition of 25% tariffs, according to Peterson. The latest restrictions in October have further intensified the growing technological arms race.
“The biggest question is about the future of technological rivalry”, Bekink said. “I don’t think the United States will back down from its strong stance on containing China’s technological prowess. The trade war has always been a technological rivalry. ”
– Lucy Bayly and Alicia Wallace contributed to the reporting.