About the author: Christopher Smart is managing partner of the Arbroath Group, an investment strategy consultancy, and was a senior economic policy adviser in the Obama administration.
With rock-bottom expectations going into Wednesday’s U.S.-China summit, Presidents Joe Biden and Xi Jinping delivered a short lull in their countries’ rapidly deteriorating relationship. If the meeting didn’t offer much of a path toward more cooperation and calm, it still underscored how each country’s future is inextricably linked to managing the relationship with its infuriating partner.
Like so many dysfunctional relatives who will gather at Thanksgiving next week to relitigate differences, you can’t live with ’em and you can’t live without ’em.
For China, the immediate motivation for a good summit was to secure some breathing room to reboot its economy, while the U.S. would welcome any reduction in geopolitical tensions as it manages wars in Europe and the Middle East. But each side still attributes most of the world’s ills to the other, meaning any reduction in tensions will be brief at best.
China’s economy seems to have stabilized after a difficult stretch following the end of its demand-crushing Covid lockdown policies. Industrial production and consumer spending data rose slightly this week, while the People’s Bank of China continues to bolster economic activity with large liquidity injections. But any cyclical rebound must still overcome a property market collapse and mounting levels of government debt. For Xi, the chance to woo nervous U.S. business leaders made the trip worthwhile even without any diplomatic breakthroughs.
For Biden, with the U.S. economy humming along nicely, the incentives for a good meeting were more geopolitical. Washington is backing Ukraine and Israel in separate conflicts that threaten to escalate. The last thing the U.S. needs is a separate confrontation with Beijing over the outcome of Taiwan’s elections in January. America’s own presidential season is gearing up, so this may have been Biden’s only chance to agree on anything meaningful with Xi through most of next year. Indeed, they are unlikely to meet again before the G-20 summit in Rio de Janeiro, a week after U.S. election day.
In that light, the list of agreements doesn’t look bad, ranging from fresh measures to stop fentanyl exports to new conversations on managing artificial intelligence to the re-establishment of military-to-military communications. A joint announcement earlier in the week to back a new global renewable energy target offered a symbolic boost to preparations for the U.N. Climate Change Conference in the United Arab Emirates later this month.
Xi’s speech to business executives, some of whom the New York Times reported paid handsomely to sit with him, was more an emotional appeal for closer cooperation than a sales pitch to potential investors. But it came amid promising headlines about more Chinese purchases of U.S. soybeans, more nonstop flights between the two countries, and the expectation of a fresh start for Boeing sales of its 737 Max.
Treasury Janet Yellen held two days of economic conversations with Chinese Vice Premier He Lifeng just last week, adding to the brief surge of bilateral warmth. But this just demonstrated how macroeconomic and financial issues are no longer at the center of the relationship, while the irritants around export controls and tariffs have migrated to the Commerce Department and Office of the U.S. Trade Representative. Not even the long-contentious discussions about a weakening Chinese currency spoiled the mood since Chinese officials have been intervening to actually boost its value.
What emerges beyond these narrow achievements, however, is just how much the two sides continue to talk past each other. The U.S. views China as having cheated on trade agreements to steal American jobs, even if the decline in U.S. manufacturing employment has been mostly due to factory automation. Beijing believes limits on high-tech exports prove the U.S. wants to keep China down, even if Washington’s limits so far have been carefully targeted to technology with potential military applications.
While formally sticking to an official “One China” policy, U.S. leaders still regard Taiwan as independent in practice, making China’s claims fundamentally illegitimate. Beijing, by contrast, views this as an outrageous interference in domestic affairs, which justifies a rapid expansion of its military strength.
Russia also divides the two. Washington sees the war in Ukraine as a contemptible attack on a sovereign nation and cannot understand how Xi could still back Russian President Vladimir Putin. China clearly doesn’t welcome the violence in Ukraine, but can’t imagine siding with a country that apparently intervenes militarily at will from Afghanistan and Iraq to Serbia and Libya.
There’s also a stylistic disconnect. Biden repeated Wednesday that the relationship is fundamentally “competitive,” while Xi diverged from recent official attacks on U.S. policy to insist “planet Earth is big enough for two.” And the engagement is further complicated by very different time horizons for how best to address differences. The U.S. feels the cyclical constraints of the electoral calendar, while China is making plans that stretch for decades.
But for all the messiness ahead in the relationship, the brief thaw from this week’s exchanges also underscores how neither side can afford to let it spin out of control. China’s economic model cannot fully stabilize without some accommodation with foreign investors. U.S. hopes for resolving regional crises look much harder if Beijing actively undermines them. In this context, slogans like “derisking” or “decoupling” just don’t mean very much. Each government finds the other frustrating at best and duplicitous at worst, but there’s just no path forward alone.
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