A fragile global economy is at stake as US and China seek to cool tensions at APEC summit

WASHINGTON: The United States and China are the two global economic heavyweights. Combined, they produce more than 40 per cent of the world’s goods and services.

So when Washington and Beijing do an economic battle, as they have for five years running, the rest of the world suffers, too. And when they hold a rare high-level summit, as Presidents Joe Biden and Xi Jinping will this week, it can have global consequences.

The world’s economy could surely benefit from a US-China détente. Since 2020, it has suffered one crisis after another — the COVID-19 pandemic, soaring inflation, surging interest rates, violent conflicts in Ukraine and now Gaza. The global economy is expected to grow a lacklustre 3 per cent this year and 2.9 per cent in 2024, according to the International Monetary Fund.

“Having the world’s two largest economies at loggerheads at such a fraught moment,” said Eswar Prasad, senior professor of trade policy at Cornell University, “exacerbates the negative impact of various geopolitical shocks that have hit the world economy.”

Hopes have risen that Washington and Beijing can at least cool some of their economic tensions at the Asia-Pacific Economic Cooperation summit, which starts Sunday in San Francisco. The meeting will bring together 21 Pacific Rim countries, which collectively represent 40 per cent of the world’s people and nearly half of global trade.

The marquee event will be the Biden-Xi meeting on Wednesday on the sidelines of the summit, the first time the two leaders will have spoken in a year, during which time frictions between the two nations have worsened. The White House has sought to tamp down expectations, saying to expect no breakthroughs.

At the same time, Prasad suggested that the threshold for declaring a successful outcome is relatively low. “Preventing any further deterioration in the bilateral economic relationship,” he said, “would already be a victory for both sides.”

The US-China economic relationship had been deteriorating for years before it erupted in 2018, at the instigation of President Donald Trump, into an all-out trade war. The Trump administration charged that China had violated the commitments it made, in joining the World Trade Organization in 2001, to open its vast market to the US and other foreign companies that wanted to sell their goods and services there.

In 2018, the Trump administration began imposing tariffs on Chinese imports to punish Beijing for its actions in trying to supplant U.S. technological supremacy.

Many experts agreed with the administration that Beijing had engaged in cyber espionage and had improperly demanded that foreign companies turn over trade secrets as the price of gaining access to the Chinese market. Beijing punched back against Trump’s sanctions with its own retaliatory tariffs, making US goods more expensive for Chinese buyers.

When Biden took office in 2021, he kept much of Trump’s confrontational trade policy, including the China tariffs. The U.S. tax rate on Chinese imports now exceeds 19 per cent, versus 3 per cent at the start of 2018, before Trump imposed his tariffs.