The 'reset' of US-China relations

On 2 June, Chinese Vice Premier Liu He, chief of the Chinese side of the US-China comprehensive economic dialogue, held a video conversation with U.S Treasury Secretary Janet Yellen. Shortly before that, on 27 May, Liu had a video conversation with US Trade Representative Katherine Tai. The two sides expressed their thought that the US-China economic relations are crucial, and both exchanged views on issues of mutual concern, and expressed willingness to maintain further communication, write Chan Kung and He Jun.

Against the backdrop of the deteriorating geopolitical relations between China and the United States, the frequent communications between the Chinese Vice Premier with US Trade Representative and US Treasury Secretary within a week appear to be quite sudden. In fact, these changes show that the relations between major powers are always multi-faceted; the superficial diplomatic statements of politicians are only a part of this. The relations between major powers built through decades of globalization, especially the economic and trade relations that seem to be relatively distant from politics, cannot be easily decoupled.

The trade relations between major powers are a typical example of this. In the first four months of 2021, as the global economy recovers, China's bilateral trade with its top four trading partners, i.e., ASEAN, EU, US, and Japan, reached RMB 1.72 trillion, RMB 1.63 trillion, RMB 1.44 trillion, and RMB 770.64 billion respectively, up 27.6%, 32.1%, 50.3%, and 16.2% respectively. Of this, China's exports to the U.S. amounted to RMB 1.05 trillion, up 49.3%; imports from the U.S. amounted to RMB 393.05 billion, up 53.3%. China's trade surplus with the U.S. was RMB 653.89 billion, an increase of 47%. While geopolitical frictions between the U.S. and China continue to escalate, the US trade deficit with China is growing. This shows that the economic and trade relations between major powers have their own logic and cannot be easily severed by politics.

Researchers at ANBOUND would like to stress that the video calls between Vice Premier Liu He and U.S. Trade Representative Katherine Tai and U.S. Treasury Secretary Janet Yellen indicate a normalization of communication between the two countries since the Biden administration took office.

"Over the past week, Vice Premier Liu He has held two video calls with U.S. Trade Representative Katherine Tai and Treasury Secretary Janet Yellen, both of which lasted about 50 minutes," China's Ministry of Commerce spokesperson Gao Feng said at a regular press briefing on 3 June. Gao revealed that the communication between the two sides got off to a smooth start. During the two calls, the two sides exchanged views on US-China economic and trade relations, macro situation, domestic policies, and other issues in an equal and mutually respectful manner. Both sides agreed that the exchanges have been professional and constructive, and that China and the United States have started normal communication in the economic and trade field. In addition, both sides reached the consensus of seeking common ground while shelving differences. The two sides agreed that the US-China economic and trade relations are very important and that there are many areas where cooperation is possible. Both sides have also raised their own concerns. The Chinese side especially has expressed its concerns with due consideration to the background and current state of domestic economic development. Finally, the two sides agreed to resolve problems in a pragmatic manner. Both agreed to take practical steps to address issues facing producers and consumers and promote the sound and steady development of US-China economic and trade relations in the interests of both countries and the world as a whole.

Although the remarks of China's Ministry of Commerce official are only part of the story and the U.S. side has not given detailed statements, several points can still be observed: (1) The Chinese authorities hold a positive and affirmative attitude towards the two video calls; (2) Officials from both sides exchanged a lot of information in a practical and professional manner; (3) The two video calls were conducted peacefully, which were quite different from the previous diplomatic meetings (such as the Alaska meeting) in which mutual accusations occurred. The two sides adopted a pragmatic attitude and both hoped to solve the problem. Thus, we believe that US-China frictions are showing signs of easing after a marked deterioration during the Trump administration, though this is limited to trade relations and does not represent a systemic improvement in relations between the two sides.

It is a rational and pragmatic choice to promote the thawing of bilateral economic and trade relations. As early as January this year, before the Biden administration took office, ANBOUND's researchers suggested that it is necessary for China to renegotiate the "phase one" trade agreement, pick a specific trade issue as the new starting point of negotiation, carry out substantive exchanges, and attempt to "reset" the US-China relations to a certain extent.

It has been four-and-a-half months since the Biden administration took office, and its domestic and foreign policies have gradually unfolded. The Biden administration has now known where to draw the line. Logically speaking, the Biden administration should have made a preliminary assessment and judgment of the situation facing the United States. Now, the Biden administration's works in various fields and policies should have entered the stage of practical implementation. Hence, now it is crucial and reasonable for the US to engage pragmatically with China, which is not only its important trade partner, but also its most important strategic competitor, to stabilize bilateral economic and trade relations, so as to adjust certain policy deviations.

Final analysis conclusion

The strategic framework and positioning of US-China relations may be difficult to overturn for quite a long time. That said, under the basic framework, it is entirely possible that relations between China and the United States will begin to normalize. Among them, the bilateral economic and trade relations are most likely to see a "reset". Based on the communications between the key financial and economic officials of China and the US, it is entirely possible that there will be a limited detente in US-China relations.

Founder of Anbound Think Tank in 1993, Chan Kung is one of China’s renowned experts in information analysis. Most of Chan Kung‘s outstanding academic research activities are in economic information analysis, particularly in the area of public policy.

He Jun takes the roles of partner, director and senior researcher of China Macro-Economic Research Team. His research field covers China’s macro-economy, energy industry and public policy.

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