After Biden-Xi summit, what next for US-China trade war?

Reductions in tariffs possible down the line, but no return to pre-Trump status quo, analysts say.

United States President Joe Biden and Chinese President Xi Jinping made little headway on resolving economic tensions at a recent virtual summit [File: Alex Brandon-Eraldo Peres/AP]

The virtual meeting between United States President Joe Biden and China’s leader Xi Jinping helped ease the growing tension between the two countries but did not make headway in resolving lingering US-China trade war disputes.

The US-China trade war, which began in 2018 under former US President Donald Trump, has resulted in both nations paying higher taxes to bring in goods from the opposing country.

Escalating import tariffs have caused supply chain disruptions that are affecting businesses and individuals worldwide. But at the summit, which took place on Tuesday, economic issues took a back seat to geopolitics.

Biden spoke briefly about China’s “unfair trade and economic policies” harming American workers, but mainly raised concerns about human rights abuses in Xinjiang, Tibet and Hong Kong, and American support for Taiwan.

In his opening remarks, Biden told Xi, “It seems to be our responsibility — as leaders of China and the United States — to ensure that the competition between our countries does not veer into conflict, whether intended or unintended. Just simple, straightforward competition.”

Shehzad Qazi, managing director of China Beige Book International, described “straightforward competition” as “just a fancy way of saying the US administration doesn’t want any accidental war or military confrontation.”

“But for now, these terms have also become placeholders for the administration’s lack of an actual China strategy,” Qazi said.

The US-China trade war has disrupted global supply chains [File: Qilai Shen/Bloomberg]

According to Trivium China analyst Joe Mazur, there is a clear understanding in the White House that Beijing isn’t going to budge on many of the core issues driving tension in the bilateral relationship.

So instead, the US is looking for areas that might support a limited degree of bilateral cooperation with China while also shoring up its relationships with allies and partners worldwide.

“This is a major departure from Donald Trump’s ‘America First’ foreign policy, which envisioned the US effectively taking on China by itself and making little to no effort to find areas of common interest with Beijing,” Mazur said.

“As part of this new strategy, Washington will increasingly look to counter Chinese economic influence by promoting its own trade and infrastructure initiatives. This will naturally engender more economic competition between the US and China but may redound to the benefit of countries in a position to pick and choose the terms of their economic partnerships with Washington, Beijing, or both.”

At the summit, Biden asked the Chinese side to release crude oil reserves to help stabilise soaring global energy prices, the South China Morning Post reported on Wednesday, citing a person familiar with the matter. China was “open” to the idea but had not committed to the request, the Hong Kong-based newspaper said.

In January 2020, Trump and Xi signed a phase one trade deal, which called for structural reforms to China’s economy and trade practices in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.

The deal also stipulated that China should commit to increasing its purchases of US agricultural products, industrial products, natural resources, and services in the coming years.

National security

Over the past year, however, China has fallen short and purchased only about 60 percent of the goods it had agreed to under the deal. The Biden administration has said it will stick with the phase one agreement and expects Beijing to uphold its trade commitments.

“The White House has already announced that on trade policy, it’s watching to see how China complies with the phase one deal,” Qazi said. “Moreover, we know that there is an internal push from US National Security Advisor Jake Sullivan to start another 301 investigation of China which could lead to yet more tariffs down the road. That said, various power centres within the US administration have been fighting over this policy, so no clear next steps have emerged.”

While Biden did not delve too much into economic issues, Xi did raise the topic of trade, appealing directly to American businesses and imploring the US to stop stretching the concept of “national security” to suppress Chinese businesses.

Xi, who called Biden “my old friend,” compared the two countries with ships that must navigate the ocean without colliding and said the two countries “should respect each other, coexist in peace, and pursue win-win cooperation”.

Xi also made comments about relaxing trade restrictions to help both economies recover more quickly.

“There may be something to that point – in particular, lowering or eliminating tariffs may help tamp down short-term inflation, a persistent political thorn in the Biden administration’s side,” Trivium China analyst Taylor Loeb said.

In January, a US-China Business Council-commissioned study found that the trade war had cost 245,000 US jobs, while a reduction of tariffs on both sides would create 145,000 jobs by 2025. The report by Oxford Economics also predicted that a “significant decoupling” of the countries’ economies would reduce US gross domestic product (GDP) by $1.6 trillion over the next five years.

Beach Container Terminal in California
Tit-for-tat tariff increases by the US and China have led to higher prices [File: Tim Rue/Bloomberg]

Loeb said tariff reductions would likely come at some point, but not all at once.

“The US will remove tariffs in areas it deems most economically beneficial and least problematic from a national security perspective,” he said.

“The reality is that we’re at the beginning of a substantial rethinking of global supply chains. Current disruptions have a lot to do with the pandemic, but even when Covid is in the past, simultaneous global pushes toward self-reliance and ‘secure’ supply chains – led by the US and China – will weigh heavily on established supply chains.”

No joint statements were issued at the end of the three and a half-hour meeting. Instead, each government issued their own statement emphasising long-standing grievances with no indications of compromise.

“Essentially, the summit didn’t change much about the state of US-China economic relations,” Loeb said. “The US is still sorting out how exactly it wants to define an international trade policy that lessens reliance on China. Beijing is doing the same, but in the meantime would like the trade relationship to return to the pre-Trump status quo. That’s not going to happen.”

Though it is still too soon to know if the meeting will translate into direct economic outcomes, Mazur believes it is certainly possible.

“It’s still unclear how much slack Washington is willing to cut Beijing on trade issues, especially given the fact that China is still far behind the pace on the purchases promised under the phase one trade deal,” he said.

“Overall, though, cooperation on economic and trade issues looks like a greater possibility now than it did a few months ago.”

Source: Al Jazeera and news agencies