On Wednesday, President Joe Biden and General Secretary Xi Jinping will hold four hours of meetings, including a working lunch. Here are a few quick points to provide context and set expectations for the discussions:
The focus of these meetings is managing tensions, not achieving ambitious outcomes. US-China tensions are high for reasons that are not going away: an intensifying global rivalry, ideological competition, mutual distrust, and domestic political incentives to scapegoat the other. But in fits and starts (including the mayhem caused by the “balloon episode” earlier this year), both Biden and Xi have decided that it is in their interest to lower the temperature in the relationship and to prevent a crisis (such as over Taiwan) that could derail their domestic agendas. With the rest of the world watching, each leader sees a benefit to showing pragmatism: Biden can demonstrate to allies that he is not leading them blindly into a new Cold War with China; Xi is struggling to revive China’s economy and maintain its attractiveness for foreign investment.
Given this backdrop, the two sides are keeping expectations for the summit low, with a focus on strengthening dialogue rather than making progress on core issues in the relationship. Key US priorities include reviving military-to-military communications, limiting the extent of China’s assistance to Russia’s war effort, and deepening Beijing’s commitment to crack down on the export of chemical precursors used to manufacture fentanyl. Xi wants assurances that the US does not support Taiwan’s independence, which comes ahead of Taiwan’s presidential election in January – precisely why Biden will be cautious in what he says publicly. Beijing would also like to see language from the US that downplays “decoupling,” but Xi is under no illusion of a major truce in technology competition and export controls.
There are some aspects of the summit that have economic implications:
- Tariff reapportionment: As we noted in late September (link HERE), the Biden administration looks likely to tweak Section 301 tariffs by reducing or removing Trump-era tariffs on some consumer imports from China (e.g., bicycles and toys from Walmart), while maintaining or even raising tariff rates on more “strategic” sectors such as autos and capital equipment. Such a move would come as part of a statutory review of the 301 tariffs now underway and likely to be completed by the end of the year. It is not a direct outcome of the Biden-Xi meeting, but a constructive dialogue in San Francisco would provide a bit more cover to what will be a difficult political balancing act for the administration given the potential to be attacked as soft on China trade during the presidential campaign season. As we have stressed, tariff reductions are likely to be quite modest in scale.
- A modest bump to some Chinese imports from the US. The media are reporting the possibility that China will resume orders for Boeing’s 737 MAX family. We had flagged this possibility in September and thus these reports seem plausible. The reality is that China needs planes from Boeing to meet future demand for air travel, particularly if Beijing wants to avoid becoming overly dependent on Airbus. A reduction in US-China tensions could also make it a bit more palatable for Beijing to facilitate imports of ag and other commodities in coming months. However, the overall strategic imperative for Beijing remains reducing reliance on imports from the US on areas regarding as a critical supply chain or key to national security and tech advancement.
We will provide reactions to the summit once it concludes.
