Managing America’s relationship with its biggest economic frenemy is one of US President Joe Biden’s toughest challenges.
So when he holds a virtual summit with President Xi Jinping later on Monday, issues like supply chains, subsidies and tariffs, a pullback in China’s vast property sector and the global energy crunch could feature prominently in discussions.
The United States and China remain codependent, as American consumers snap up products manufactured in Chinese factories and companies scramble for parts sourced from Asia. Solving the climate crisis requires China’s cooperation, while Wall Street money managers are drawn by the market’s potential, even though many have been burned over the past year by a ferocious regulatory crackdown.
With this in mind, Biden is expected to emphasize the areas in which Beijing and Washington can cooperate. But growing tensions over issues such as Taiwan, Hong Kong and human rights have also driven a wedge between the two countries and their economies, complicating the talks.
“One should not hold out false hope that the Xi-Biden virtual summit will fix the fundamental differences between China and America or change the general trajectory of the rivalry,” said Alex Capri, a research fellow at the Hinrich Foundation. “The overarching question is whether, under the best of circumstances, the two leaders can try and come up with the rationale for a new kind of ‘competitive coexistence.’”
Here are some issues on the economy they could talk about.
Trade and tariffs
Two dozen business groups are putting pressure on the Biden administration to consider removing tariffs on China to help ease surging inflation. Treasury Secretary Janet Yellen said on CBS’ “Face the Nation” Sunday that such a move is “under consideration.”
But it may not happen. While the Biden administration recently reached an agreement with the European Union to ease Trump-era sanctions on aluminum and steel, it’s continued to criticize China’s trade practices and subsidies for domestic businesses.
The United States has backed the “Phase 1” trade deal former President Donald Trump signed with China in January 2020. In a speech last month, US Trade Representative Katherine Tai said China must be accountable for promises made in that agreement. Beijing has not delivered yet on all its commitments, she said.
Tai also indicated the United States could push China to go even further.
“We continue to have serious concerns with China’s state-centered and non-market trade practices that were not addressed in the Phase One deal,” Tai said. “As we work to enforce the terms of Phase One, we will raise these broader policy concerns with Beijing.”
A senior Biden administration official told reporters on Sunday that supply chain issues and tariffs are not on Biden’s agenda for the meeting, but it is possible that Xi will bring them up.
China’s property sector
Yellen also said Sunday that the administration is watching the embattled property sector in China and warned of potential global consequences if China’s economy were to “slow down more than expected.” The country’s GDP grew at its slowest pace in a year last quarter.
“It’s something that’s important, that we’re monitoring closely,” Yellen said, when asked if she was confident China could control the financial fallout of a real estate slump.
Financial markets were rattled in September after the developer Evergrade warned it could default on its massive debts. That sparked fears of contagion across the real estate industry, which accounts for as much as 30% of China’s economic output.
Evergrande has recently managed to make some interest payments and stave off a collapse. But a mountain of debt obligations is coming due over the next year. Several other Chinese developers are in a similar position as demand for properties pulls back.
“China’s a real estate sector with firms that are over-leveraged and it’s something that China is trying to deal with,” Yellen said.
In a recent report, the Federal Reserve warned that “financial stresses in China … could further strain global financial markets and negatively affect the United States.” The Fed pointed specifically to the crisis at Evergrande.
Energy and climate
China and the United States have recently found common ground on the climate crisis, surprising observers at the COP26 climate talks in Scotland with a joint pledge to cut emissions.
“I’m gloomy about the prospects for cooperation on anything, except maybe climate, where their interests coincide,” said William Reinsch, a senior adviser at the the Center for Strategic and International Studies in Washington.
The world’s top two economies are also its biggest polluters, and both are feeling the pain of an energy crunch exacerbated by attempts to transition to greener supplies.
Last month, the Chinese government ordered the country’s coal mines to “produce as much coal as possible” as winter approaches. Biden, for his part, has urged OPEC to pump more oil to ease soaring gasoline prices that reached a record high in California this weekend.
Neither China, the world’s biggest coal consumer, nor the United States signed on to a deal announced at COP26 in which a number of countries committed to phasing out the use of coal. They have said they will phase down its use.
— Jill Disis and Natasha Bertrand contributed reporting.