When President Joe Biden took office in January 2021, there were expectations on both sides of the Pacific that he would back down from the trade war his predecessor launched with China nearly three years earlier.
Frustrated by China’s huge trade surplus and allegations of stealing US intellectual property, former President Donald Trump imposed tariffs on $50 billion worth of Chinese goods in June 2018. Beijing countered with its own tariffs, and the spiral continued until a so-called ceasefire was agreed in 2020.
Rather than reverse those actions, Biden did tacitly exacerbated the trade conflict. In October, his government imposed sweeping new restrictions to limit China’s access to technology critical to its growing military power.
Against this backdrop of increasing competition and amid fears of a global recession, leaders of the world’s two largest economies will meet on Monday on the sidelines of the G20 summit in Bali, Indonesia.
Speaking to reporters in Bali, US Treasury Secretary Janet Yellen said the meeting was designed to stabilize ties and expressed hope it would lay the groundwork for bilateral economic engagement.
The stakes are high for both sides and the rest of the world. China, with its nearly $18 trillion economy, has been the main engine of global growth in recent years. But Covid lockdowns and a housing crisis have slowed expansion this year.
Although expectations for the meeting are low, it’s crucial for both sides to re-engage, Mattie Bekink, the Shanghai-based China director of The Economist Intelligence Corporate Network, told CNN Business.
For decades, regular lines of communication have existed between US officials and their Chinese counterparts, but most of those lines were cut after House Speaker Nancy Pelosi visited Taiwan in July.
“It’s important for heads of state to speak directly,” she said. “There is a lack of trust in this relationship. Hopefully, when Xi and Biden send the signal that it is time to resume communications, it will trickle down to the lower levels.”
In addition to trade, it is important for both sides to work together on issues such as climate change and food security, she said.
Stabilizing an economic relationship between the US and China that is at such a low ebb will be difficult given dashed expectations on both sides, said Dexter Roberts, senior fellow of the Atlantic Council’s Asia Security Initiative, who published a newsletter on the deals between the US and China issue economic ties called trade war.
“First of all, it was a big deal that Biden didn’t try to find a way to lower the $300 billion in tariffs Trump imposed, which is what many expected of him,” he told CNN Business. “Much to the shock and chagrin of Beijing, Biden has made things even more awkward on the trade side.”
Biden’s actions included: October’s restriction on sales of advanced chips and chip-making equipment, a ban on all goods made in China’s Xinjiang region, the blacklisting of some Chinese companies, and the imposition of sanctions on dozens of Chinese and Hong Kong officials over Beijing’s crackdown the special administration region.
In 2018, the Trump administration imposed a series of tariffs on hundreds of billions of dollars worth of Chinese goods such as solar panels, washing machines, steel and aluminum. China reacted with its own tariffs on American cult products such as Harley-Davidson and Jack Daniel’s.
US-imposed taxes and the ensuing trade war helped slow China’s economy, but they also hurt the bottom line of American companies, leading to job cuts, higher prices, and shrinking household budgets, as later economic analysis would show.
In the “truce” of early 2020, Trump signed a “Phase 1” trade deal with China, in which Beijing pledged to buy $200 billion more in American exports than it did in 2017. However, China didn’t comply and “didn’t buy any of the additional $200 billion in U.S. exports pledged under the deal,” according to a report by the Peterson Institute for International Economics.
When Biden took office, he kept Trump tariffs in place in part because China still hadn’t met those targets, despite pressure from American companies calling for rollbacks. But as inflation began to soar to historic highs, US officials including Yellen have held talks with China about potentially lifting some tariffs to tame price hikes.
Bekink said she doesn’t expect any dramatic shifts in trade flows as a result of the Biden-Xi meeting. And the surplus in favor of China has not disappeared.
In the first 10 months of this year, China’s exports to the United States grew 6.6% to $495 billion compared to the same period in 2021, according to the latest Chinese customs data. China’s imports of American goods rose just 0.3% to $145 billion over the same period.
But the two leaders are expected to discuss the Biden administration’s efforts to boost domestic semiconductor chip production, which he noted last month has already raised concerns among his Chinese counterpart.
“I heard from Xi Jinping that he’s a little concerned about this,” Biden said at an event in Syracuse, New York, where he announced a $100 billion local investment in semiconductor manufacturing.
The pandemic has shone the spotlight on the downside of America’s decades-long reliance on foreign chip manufacturing. Lockdowns and factory closures in Asia, followed by a global surge in demand for microchips, have resulted in crippling shortages of the crucial semiconductors needed for American industries, from automakers to cybersecurity to medical devices.
The resulting shutdowns at auto plants helped drive up new and used car prices and fueled inflation, which remains at its highest level since the 1980s.
The United States has labeled the chip shortage a “national security concern,” and in August President Biden signed the $200 billion CHIPS and Science Act, a five-year plan to boost domestic chip manufacturing, cut costs and reduce dependency from chip worldwide supply chain.
US imports of semiconductors from China down 26% from before 25% tariffs, to Peterson. The latest restrictions in October have further escalated the growing technological arms race.
“The bigger question is about the future of the tech rivalry.” said Beck. “I don’t think the US will back down from its strong stance on containing China’s technological capabilities. The trade war has always been a tech rivalry.”
– Lucy Bayly and Alicia Wallace contributed to the coverage.