Despite achieving significant progress on other fronts, the Biden-Xi meeting held on November 15th of last year provided few tangible answers about the future of the United States-China economic relationship. While this outcome isn’t necessarily surprising, it comes at a bad time for both world leaders. President Xi Jinping has tied the Chinese Communist Party’s legitimacy – and his own – to his ability to deliver sustained economic growth. President Biden faces a difficult election, the outcome of which may depend on the state of the American economy in November. The world’s two largest economies have every reason to avoid a new round of costly competition, but geopolitical rivalry seems to have prevented closer cooperation.

Expectations surrounding the meeting were low. Previous meetings between top-level officials from both governments had already explored which topics were open for discussion, positioning the Biden-Xi tête-à-tête as a diplomatic capstone to successful negotiations. The most optimistic outlooks hoped that private agreements could be reached regarding artificial intelligence norms and the flow of fentanyl and its precursor chemicals. It was anticipated that President Xi and Chinese negotiators would seek assurances against the imposition of new tariffs and sanctions, while also projecting an aura of strength to unnerve American investors. Both parties were expected to highlight China’s economic importance to the global economy and bolster confidence in their trade relationship. At a minimum, it was believed that a public handshake between the two leaders could help lessen diplomatic tensions.

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The ongoing economic rivalry between the two nations, exacerbated by the trade war that began under the Trump Administration and continued by the Biden administration, certainly hasn’t helped matters. Since 2018, the United States has imposed tariffs in four general lists on thousands of Chinese imports valued at over $380 billion, significantly reducing trade between the two countries and raising consumer costs by over $48 billion. The Chinese government's retaliatory tariffs on American exports to China have caused further pain for the U.S. economy. Both sides have largely disregarded rulings from the WTO, whose authority and efficacy have come into question in recent years, leaving the two nations with few other options than to negotiate directly.

Domestic concerns regarding Chinese business practices and an effort to create a “new economic order” that caters to worker interests have so far persuaded the Biden administration to maintain these tariffs, much to the chagrin of free trade proponents and various business interests. Importantly however, these policies are popular with a majority of Americans and are heavily favored by industrial unions and Democratic voters in states like Pennsylvania, Michigan, and Wisconsin; states narrowly won by Biden in 2020 and which Clinton lost to Trump in 2016. Moreover, the Biden administration’s push to boost domestic electric vehicle production relies heavily on a controversial 27.5% tariff on Chinese exports, overriding concerns about increasing costs of EVs and slowing adoption.

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This mixture of domestic opinion and administrative policy made it all but impossible for Biden to agree to any substantial de-escalation of the trade war. Instead, the discussion focused on seeking guarantees against any new major tariffs or sanctions. Besides the threat of further retaliatory tariffs and economic disruptions, Xi’s primary leverage in economic negotiations revolved around further commitments to combat the flow of fentanyl into the United States. Agreement on this front led the United States to lift sanctions on China’s Public Security Ministry’s Institute of Forensic Science earlier this year – a controversial move due to the institute’s alleged involvement in human rights abuses.

The meeting between Biden and Xi occurred on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit being held in San Francisco. Biden made a special point to meet with the world leaders and business representatives of the 21-member group just days after his meeting with Xi. He was preempted by Treasury Secretary Janet Yellen Secretary, who concluded the APEC Finance Ministers’ Meeting, and Secretary of State Antony Blinken and Trade Representative Katherine Tai, who delivered the opening to the Ministerial Meeting the next day. The presence of so many high-ranking officials highlights the summit’s importance to the Biden administration and caps off a series of meetings between American and Chinese officials.

While many of the concerns raised and commitments made at the APEC summit mirrored those of the Biden-Xi meeting, the Biden administration’s goals for the group reflect an emerging Indo-Pacific strategy centered on strategic rivalry between the United States and China. At a time when officials are attempting to deter Chinese competition and induce cooperation, concentrating on regional allies has become a priority. The United States has significantly invested in bolstering regional defensive capabilities, including sending $80 million in military aid to Taiwan and conducting some of the largest joint naval exercises ever with Japan and South Korea at the beginning of this year.

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However, the primary focus of American economic efforts in the region has been the Indo-Pacific Economic Framework for Prosperity (IPEF). Unlike traditional free trade agreements – such as the politically controversial Trans-Pacific Partnership – the IEPF aims to facilitate better cooperation between its 13 member nations on key economic objectives outlined by the Biden administration. This includes improving access to clean energy and implementing anti-corruption measures. American economic investment in the region has doubled to over $969 billion over the past decade, with Biden touting the additional $50 billion the United States had invested in APEC member nations in 2023 alone. The IEPF group specifically excludes China, instead favoring many APEC member nations and regional powers, such as India, in a bid to tie them closer to the United States and away from China’s influence.

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Aside from its military provocations in the South China Sea and Taiwan Strait, China has responded to these moves in several ways. China has provided billions of dollars in financing to countries in Southeast Asia, although recent trends and the COVID-19 pandemic have led funding to decline by almost $3.7 billion between 2015 and 2021. China’s Belt and Road Initiative is central to these investments, which has provided over $100 billion in infrastructure contracts in the region, with nearly half going to Pakistan. 

Chinese trade diplomacy has put a specific emphasis on courting nations that may feel slighted following the American withdrawal from the Trans-Pacific Partnership negotiations. While the United States has moved away from multilateral trade agreements, China has wholeheartedly embraced them. Its centerpiece achievement is the Regional Comprehensive Economic Partnership created in 2020 – a direct competitor to the United State’s IEPF. These agreements complement other regional trade deals China has signed with nations like Nicaragua, South Korea, and Australia.

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President Xi also used the APEC summit to reach out to American businesses, delivering an address in which he called on attendees to be “partners, not adversaries”. The comments come at a particularly sensitive time for China. Despite attracting several headline-making business partnerships, the worrying state of the Chinese economy has caused foreign investment to decline substantially. Past exaggerations notwithstanding, China’s current economic slowdown is causing fear at home and abroad, opening the way for a possible shift in policy when it comes to the United States-China economic relationship. If Xi is seriously considering such a change, it could explain his willingness to agree to Biden’s overtures and eagerness to appeal to American businesses.

While some constructive agreements were reached, the focus of the meeting seemed to center more on positive optics – not positive commitments. This doesn’t mean the meeting was a failure. On the contrary, images of the world’s two most powerful leaders sitting down to talk about cooperation can do much to ease fears of rising tensions. Biden can claim success in negotiating several important agreements without having to compromise the tariffs and sanctions that are central to both his trade program and reelection campaign. Xi demonstrated China’s continuing commitment to attracting American business investments while working toward a detente in the trade war. Both leaders seized the opportunity to underscore the nature of the United States-China relationship, and their hopes for its future. Nonetheless, underlying geopolitical tensions and ideological differences are likely to remain the primary determining factors in economic relations between the two nations, regardless of how many polite handshakes are exchanged.

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April, 2024