SUMMARY: President Joe Biden and General Secretary Xi Jinping will take steps to prevent the balloon affair from thwarting their efforts to maintain “guard rails” on the relationship and avoid a crisis. But the postponement of Secretary Blinken’s visit underscores the extent to which both mutual suspicion and domestic politics make it difficult for the leaders to manage these risks.
We do not know all the factors that went into the Biden administration’s decision to postpone Secretary Blinken’s visit to Beijing this weekend, following the revelation of a Chinese high-altitude balloon over Montana. US officials may have intelligence that casts the intrusion as a significant provocation from China, as opposed to an incident that – from the outside – would seem to be not unprecedented or intended as particularly escalatory on China’s part.
For now, we assume that domestic politics – the fierce backlash from members of Congress in particular – was a key driver if not the primary factor in the decision. The administration likely decided that continuing the visit would have been seen as giving a “free pass” to Beijing in a political environment focused on the “China threat.” Indeed, this episode comes the same week that an Air Force general made headlines for a leaked memo warning of conflict over Taiwan in 2025 (see our take here) and amid a steady of churn of Congressional initiatives aimed at China, from growing support for efforts to ban TikTok to the establishment of a remarkably bipartisan “Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party.”
The irony is that the primary purpose of the Blinken visit was to continue the effort, started by Biden and Xi during their meeting at the G-20 summit in November, to establish “guard rails” and avoid a crisis. Both leaders have taken steps to that end in recent weeks. President Biden has sought to quietly lower the temperature on the Taiwan issue. Xi has struck a friendlier tone of late and had agreed to meet with Blinken during the visit. It is also worth noting that Beijing fairly quickly expressed “regret” over the balloon episode, which – independent from the motivations behind launching the balloon – suggests a desire to limit the diplomatic fallout.
The lesson is that politics, as well as intense mutual suspicion by the two sides, is thwarting even this basic effort by the leaders to put a floor under the relationship.
What happens next? In terms of engagement, lower-level diplomacy and other channels of communication will remain open. The trickier aspect is managing the optics around higher-profile diplomacy. It seems likely that the two sides will want to reschedule the visit – or a substitute engagement such as phone call – in coming weeks after some pause to allow the furor over the balloon to die down.
The main implication for markets is that while Biden and Xi will continue efforts to avoid a crisis, the dynamics above do point to room for miscalculation and escalation. The most serious flashpoint remains Taiwan, in particular whether House Speaker Kevin McCarthy should follow through with previous pledges to visit Taipei this year.
Economic policy issues with a nexus to national security – in particularly technology policies – will remain highly assertive. The Biden team is under heavy scrutiny from Congress to not reduce pressure on Beijing, even if they should want to – and in many cases they don’t.
For more details on specific risks to the US-China relationship this year, please see these recent notes:
- CHINA: What could go wrong in 2023? (29 January 2023)
- China 2023 outlook: Confidence game (10 January 2023)
- US-CHINA: Delisting risks are falling, but broader tensions remain high (15 December 2022)
