China and U.S. stepping up with new wave of engagement, facilitating global economic development

Editor's note: Gao Zhijun is an assistant research fellow at the Chinese Academy of Social Sciences. The article reflects the author's opinions and not necessarily the views of CGTN.

In recent weeks, China and the United States have ramped up their efforts in enhancing bilateral engagement, as demonstrated by a new series of senior official visits across the Pacific. This follows the visit by Chinese Foreign minister Wang Yi to Washington at the end of October. At the invitation of U.S. Treasury Secretary Janet Yellen, Chinese vice premier He Lifeng made a visit to the U.S. between November 8 to 12. He also currently serves as the Chinese lead person for China-U.S. economic and trade affairs. 

As China-U.S. relations have been significantly strained since former U.S. President Donald Trump launched a trade war against China in 2018, the ongoing momentum in bilateral engagement demonstrates that resolving differences through open communication and expanding collaboration where interests align will be beneficial for both countries and beyond.

'Decoupling' not viable option; not serve interests of either side

In Yellen's prepared remarks ahead of the meeting with He, she made the point that "a full separation of our economies would be economically disastrous for both our countries, and for the world." This statement is consistent with Yellen's stance during her visit to China back in July, which could help dispel the worry of total "decoupling" between the world's two largest economies. This is fundamentally because China and U.S. interests are so closely intertwined, making it infeasible for Washington to artificially disentangle the bilateral relationship. 

A joint report published by Oxford Economics and the U.S.-China Business Council in 2021 indicated that the trade war had reduced U.S. economic growth and caused an estimated peak loss of 245,000 jobs. Meanwhile, if the two-way tariffs were to scale back from 19 percent (the current level) to 12 percent, it would boost U.S. output and employment by adding $160 billion in real GDP and 145,000 workers by 2025.

Furthermore, China has become a major trading partner for over 140 economies and the world's largest trading country, which means that any attempts by the U.S. to "economically decouple from China" would risk alienating itself from the bulk of the global market. 

As for the Asia-Pacific region, the White House has invested tremendous capital to "entice" enterprises to relocate from China, culminating in the launch of the IPEF, consisting of 14 economies. However, data shows that most IPEF countries tightened their trade ties with China in the past decade. As of 2021, China was the largest source of manufactured goods for most of the IPEF countries (except Brunei) and the top export destination for half of the IPEF countries. More broadly, China has deepened its trade relationship with Europe, Africa, Latin America and other parts of the world, making it more costly for Washington to reconfigure the global supply chain on its terms.

Deepening economic and trade collaboration contributes to both countries' welfare

Another encouraging sign of the heightened bilateral engagement lies in the active attitudes and efforts in exploring areas for cooperation despite the relationship in general being still in tension. Empirical data has indicated that a healthy and collaborative China-U.S. relationship suits the interests of both nations. 

Taking foreign direct investment (FDI) as an example, the U.S. Bureau of Economic Analysis (BEA) shows that U.S. FDI stock in China reached $126.1 billion in 2022, a net increase of $12.02 billion compared to 2021. U.S. affiliates in China help create job opportunities and bring valuable expertise to the country.

From an economic perspective, China's vast domestic market, convenient infrastructure and highly efficient supply chain have lifted U.S. firms' competency and revenue growth. A study conducted by Bank of America in 2021 revealed that among all the U.S. Fortune 500 firms, approximately 16 percent of them gained at least 5 percent of their revenue from China, some of these firms even depend on China for over 20 percent of their revenue. This further reflects that enhancing economic ties is a "win-win outcome" for both countries.

Differences persist, but open communications help find solutions and address global challenges

The ongoing momentum of the China-U.S. engagement has created a positive atmosphere for responsibly managing the bilateral relationship. However, it is essential to be aware that structural issues in the economic arena are still in place and not easy to resolve. 

However, a critical signal that momentous engagement conveys is that both countries are facing their differences upfront and taking concrete actions to manage them through open communications. At the same time, both countries are eyeing collaboration via sub-national avenues, where substantiative outcomes tend to be easier to come out. This was illustrated by Californian Governor Gavin Newsom's recent one-week trip to China, during which multiple agreements on climate change were signed. Such endeavors would pave the way for rolling out concrete collaborative work in green transition and are expected to generate positive impacts on local communities and beyond.

In its recent world economic outlook, the International Monetary Fund (IMF) expressed that global economic recovery from COVID-19 and geopolitical conflicts continues to be slow; the global economic growth rate is projected to drop to 3.0 percent in 2023 and 2.9 percent in 2024, compared with 3.5 percent in 2022 and the average level of 3.8 percent between 2000 and 2019. Moreover, the IMF warned that climate shocks and intensifying geoeconomic fragmentation could augment threats to food security, energy price hikes and debt distress, particularly in emerging and developing countries. 

As the world's two largest economies, China and the U.S. take one-fifth of the global trade, hence, avoiding a "decoupling" would help stabilize supply chains and improve economic welfare globally. Their potential for coordinating macroeconomic policies would help lower inflation and alleviate pressure in indebted countries. Simultaneously, as the impact of climate change does not stop at the national border, kicking off collaborative projects on this front at the national and local levels would mean tremendously to the sustainability of our global community.

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