The story so far: The U.S. President Joe Biden and his Chinese counterpart Xi Jinping held a summit, their second, in San Francisco on November 15, on the sidelines of the Asia-Pacific Economic Cooperation conference. Their aim was to resurrect a bilateral relationship that is now at its lowest point since Washington and Beijing established diplomatic ties in 1979.
What did the meet accomplish?
The most consequential outcome was the decision to restore military-to-military communications between the two nuclear weapons states, critical to prevent potentially catastrophic miscalculations. The respective defence forces will now resume regular exchange of information under the Military Maritime Consultative Agreement that started in 1998. These channels were closed after Nancy Pelosi’s (then Speaker of the U.S. House of Representatives) controversial visit to Taiwan in August 2022, the first visit by a Speaker in 25 years. A self-ruled island state, Taiwan’s status remains a bone of contention between the world’s biggest superpowers, with China pursuing the goal of its reunification into the mainland. Under the “one-China” policy, Washington accepts Beijing as the only legitimate government of China and acknowledges, but does not endorse, Taiwan as part of that country, and provides concrete security guarantees under the Taiwan Relations Act. President Biden has on several occasions pledged that the U.S. would intervene if China attacked Taiwan.
Beijing condemned Ms. Pelosi’s travel as constituting a serious violation of the status quo. President Xi, who has often asserted his resolve to reunify the island with the “motherland,” warned his counterpart that Washington was “playing with fire”. Beijing vented its ire by firing ballistic missiles off the Taiwan coast and conducted military drills as a deterrence exercise, even as Ms. Pelosi went ahead with her programme. More recently, House Speaker Kevin McCarthy received Taiwan’s President Tsai Ing-wen in April in California, the highest American official to do so on U.S. soil.
Where does the trade dispute stand?
Amid this hostile political environment, businesses from the world’s two biggest economies are having to navigate an equally volatile economic and trade policy framework. Within months of his ascent to the White House, President Biden issued an executive order in June 2021, blacklisting 59 defence and surveillance companies under the so-called “Chinese military-industrial complex”. This is in addition to the Trump administration’s blacklisting in 2019 of several Chinese Artificial Intelligence (AI) start-ups for alleged human rights abuses in Xinjiang.
More specifically, Washington and Beijing are leveraging their own areas of strength to inflict maximum damage on the other. A case in point is the sweeping controls the Biden administration enacted in October 2022, further extended in October 2023, on exports of advanced computer chips for the manufacture of semiconductors. The curbs bar U.S. and non-U.S. firms, whose products contain American technology, from supplying hardware and software to specific Chinese companies, besides prohibiting American citizens and firms from collaborating with Chinese chip makers, except under special permission. The rationale behind the export bans is to undercut Beijing’s strides in AI and supercomputing, which have powered its supersonic and nuclear weapons capability, which Washington views as detrimental to its security interests. On top of the ban on tech exports comes the executive order Biden issued in August prohibiting U.S. investments in the high-tech arena.
China has hit back in kind, clamping a ban in July on gallium and germanium exports, raw materials used in the production of microchips and weapons systems. These are the items listed in the U.S. inventory of materials critical for economic and national security. Additionally, curbs were imposed in October on exports of various types of graphite, a vital mineral for the production of electric vehicle batteries, where China enjoys dominance in the global supply chain. The government further tightened its anti-espionage and data protection laws on the grounds of strengthening national security, forcing firms to designate “for China” digital tools, set up China specific email ids and hive-off country exclusive servers.
What is the way forward?
The escalation of the bilateral dispute was epitomised in the muscular approach that the U.S. adopted to shore up global hegemony during the Trump presidency and, conversely, China’s quest for world military and technological supremacy that has crystallised under President Xi. The contours of this conflict have not fundamentally altered under President Biden’s leadership. But a slight dose of realism seems to have been infused into navigating this complex relationship. There is in evidence a greater accent on exploring pragmatic avenues of coexistence through de-risking the two economies, rather than disengagement or ‘decoupling’. This is a subtle but significant shift, and the only hope in the short term that the superpowers will climb down from their hard positions.
The writer is Director, Strategic Initiatives, AgnoShin Technologies.
