Addressing tensions between China and the rest of the world

This article is part of our special section on the DealBook Summit that brought together business and policy leaders from around the world.

When President Biden met his Chinese counterpart, Xi Jinping, last month in their first face-to-face talks in a year, observers watched for any indication of a thaw in relations. The leaders seemed happy to oblige.

“We must ensure that competition does not devolve into conflict,” Biden said in his opening statement. “For two major countries like China and the United States, turning their backs on each other is not an option,” Xi said. “Planet Earth is big enough for the two countries to succeed.”

That the leaders of two of the world’s most powerful countries, which have been fierce rivals, spoke at all was seen as a small sign of progress. But a separate meeting later that day revealed how the two nations are linked.

At a hotel in San Francisco, Mr Xi hosted a banquet with a group of top US business leaders, including Tim Cook, the CEO of Apple, and Larry Fink, the boss of BlackRock, the giant asset manager. Mr Xi received a standing ovation and declared that China welcomed global business and was an open market, despite policies and actions that have shown the opposite and forced some companies to leave the country.

So many executives were willing to show their support because China remains important to global business, despite the challenges of operating there and the country’s economic slowdown. Last year, bilateral trade reached one record high of nearly $691 billion, according to U.S. government data.

Yet tensions over everything from national security and trade to technology and Taiwan’s future are not going away. The Biden administration says China is the biggest national security threat to the United States, and Donald Trump, who imposed trade tariffs on Chinese imports when he was president, appears likely to be the Republican nominee for president next year.

Regardless of who wins in 2024, there is broad agreement that Beijing must be challenged. While Mr. Biden continued some of his predecessor’s policies, the two administrations have taken different approaches to countering China.

The Biden administration’s strategy is based on three pillars: cultivating alliances to counter Beijing; compete better with China; and investing domestically to support key economic sectors through policies such as the Inflation Reduction Act to accelerate the transition to electric vehicles and the Chips Act to increase semiconductor production.

On the national security front, the Biden administration has struck a series of long-term deals. It signed Aukus, a security agreement with Britain and Australia, to make nuclear-powered submarines available to the Pacific nation. The United States has restarted the system Quadruple Security Pact with Japan, Australia and India, a rising power seen as a regional bulwark against China. Mr. Biden also brokered a reconciliation between South Korea and Japan, ending decades of acrimony and signing a three-way military and intelligence-sharing pact.

The involvement has extended to trade, with the Netherlands and Japan agreeing to comply with US export controls to China on advanced chip-making technology, despite the economic impact on some of their biggest companies.

But a big question arises: How long can the United States maintain that united front? The Inflation Reduction Act provided massive government subsidies to encourage investment in renewable energy and technology. For Mr. Biden, the legislation represents a serious effort to transform the American economy. But it angered European governments, with the European Union saying it was discriminating against the continent’s companies and may have broken World Trade Organization rules.

“The U.S. has done better with Asia than with Europe, and that reflects the fact that Asia was simply a bigger priority than Europe,” said Noah Barkin, senior adviser in the China practice at the Rhodium Group, a research firm. .

Emmanuel Macron, the president of France, has warned that Europe should not blindly follow the American approach and be drawn into a war between the United States and China over Taiwan. German companies are deeply involved in China, with around a third of companies importing essential materials from the country.

Ursula von der Leyen, the president of the European Commission, said in a speech in March that “decoupling” relations with China was crucial – a key rhetorical difference from the “decoupling” often heard in US circles policymakers.

China sees an opportunity to exploit potential differences between the United States and Europe. Ms von der Leyen and other European officials will hold a two-day summit in Beijing from today, where they will meet Mr Xi.

“Beijing hopes that Europe will not go in the same direction as the US,” said Yu Jie, a senior fellow on China at Chatham House, a London-based think tank.

Meanwhile, American companies want more certainty in the relationship between the US and China. “Businesses can’t ignore China because the market is too big, but they wonder how much geopolitical risk they want to take themselves,” Ms. Yu said.

Michael Hart, president of the American Chamber of Commerce in Beijing, says the end of Covid-era travel restrictions that prevented U.S. business leaders and policymakers from meeting in person has helped.

He acknowledges there are challenges in operating in China, but said he believes many companies, such as direct-to-consumer companies, will inevitably want to tap into a huge market. Mr. Hart also argues that business can act as a counterbalance to the political dogmatism that dominates Washington. “Corporate America will be here and be that ballast,” he said.

Others, however, see that as wishful thinking. Chris Miller, the author of “Chip Wars,” a book on the geopolitical implications of the semiconductor industry, who teaches international business at Tufts University, says the root causes of the difficulties for global companies operating in China are the policies of the be Mr Xi. They deter long-term foreign investment and are reshaping China’s economy in ways that worry international companies.

Mr. Miller points to Chinese automakers’ overproduction causing a backlash in Europe and Japan. Last week, the Biden administration announced restrictions that limit how much Chinese companies can benefit from U.S. subsidies for electric vehicle production.

Mr. Xi’s dinner with business leaders in San Francisco, Mr. Miller added, was an example of why doing business in China is harder than ever, not a sign of a more hospitable climate in Beijing.

“You can compare the difficulty of doing business there with the number of standing ovations,” he said. “That is not proof that the business environment is safe, but that market access depends on the whims of the Chinese leadership. Global business cannot ignore the world’s second-largest economy, but that doesn’t mean they are happy or planning to invest more.”