A fragile world financial system is at stake as U.S. and China search to chill tensions at APEC summit

WASHINGTON — The United States and China are the 2 world financial heavyweights. Combined, they produce greater than 40% of the world’s items and companies.

So when Washington and Beijing do financial battle, as they’ve for 5 years working, the remainder of the world suffers, too. And after they maintain a uncommon high-level summit, as Presidents Joe Biden and Xi Jinping will this week, it could actually have world penalties.

The world’s financial system might absolutely profit from a U.S.-China détente. Since 2020, it has suffered one disaster after one other – the COVID-19 pandemic, hovering inflation, surging rates of interest, violent conflicts in Ukraine and now Gaza. The world financial system is predicted to develop a lackluster 3% this yr and a couple of.9% in 2024, in accordance with the International Monetary Fund.



“Having the world’s two largest economies at loggerheads at such a fraught moment,” stated Eswar Prasad, senior professor of commerce coverage 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 not less than cool a few of their financial tensions on the Asia-Pacific Economic Cooperation summit, which begins Sunday in San Francisco. The assembly will convey collectively 21 Pacific Rim nations, which collectively symbolize 40% of the world’s individuals and practically half of worldwide commerce.

The marquee occasion would be the Biden-Xi assembly Wednesday on the sidelines of the summit, the primary time the 2 leaders can have spoken in a yr, throughout which era frictions between the 2 nations have worsened. The White House has sought to tamp down expectations, saying to count on no breakthroughs.

At the identical time, Prasad recommended that the edge for declaring a profitable consequence is comparatively low. “Preventing any further deterioration in the bilateral economic relationship,” he stated, “would already be a victory for both sides.’’

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%, versus 3% at the start of 2018, before Trump imposed his tariffs. Likewise, Chinese import taxes on U.S. goods are up to 21%, from 8% 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. 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 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.

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% 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.

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% this year and 3.5% in 2024 – down sharply from the 2000-2019 annual average of 4.9%.

The Biden administration insists it isn’t 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 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 stated.

Xi, too, has motive to attempt to restore financial cooperation with the United States. The Chinese financial system is below heavy pressure. Its actual property market has collapsed, youth unemployment is rampant and client spirits are low. The raids on overseas companies have spooked worldwide firms and traders.

“With severe headwinds going through the Chinese financial system and lots of U.S. companies packing up their baggage and leaving China, Xi must persuade traders that China continues to be a worthwhile place to conduct enterprise,’’ stated Wendy Cutler, vp of the Asia Society Institute and a former U.S. commerce negotiator. “This won’t be a straightforward promote.’’

Complicating issues is that the tensions between Washington and Beijing go effectively past economics. Under Xi, the Chinese Communist Party has punished dissent in Hong Kong and the autonomous Muslim area of Xinjiang. His authorities made aggressive territorial calls for in Asia, participating in lethal border clashes with India and bullying the Philippines and different neighbors in components of the South China Sea it claims as its personal. It has more and more threatened Taiwan, which it considers a renegade Chinese province.

U.S.-China tensions might intensify subsequent yr with presidential elections in Taiwan and the United States, the place criticism of Beijing is among the many few areas that unite Democrats and Republicans.

Xi’s insurance policies look like costing China within the battle for world opinion. In a current survey of individuals in 24 nations, the Pew Research Center reported that the United States was considered extra favorably than China in all however two (Kenya and Nigeria) nations.

Could China change course?

Speaking on the Center for Strategic and International Studies assume tank in Washington, Rep. Raja Krishnamoorthi, an Illinois Democrat who serves on a House committee that screens China, famous optimistically that Xi has reversed himself earlier than – notably in declaring a sudden finish to the draconian zero-COVID insurance policies that crippled China‘s economy last year.

“We have to give that possibility a chance, even at the same time that we hedge and protect our interests,’’ Krishnamoorthi stated. “That’s what I’m hoping we additionally see come out of this assembly.’’

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