The beginning of better relations with China?

This month’s meeting in Beijing between US President Trump and Chinese President Xi Jinping was more eventful than the public reception suggests.  There was neither grand bargain on Iran or Taiwan nor concessions on areas of abiding interest. But while a geopolitical breakthrough was never in the cards, a renormalization of the US-China relationship was, and it began. Intriguingly, it was not just a resumption of the old dialogue, but a new, bilateral approach.

The two parties described their goal as one of “constructive strategic stability.” Gone, for now, was the hostile rhetoric. In its place was an attempt to establish an institutional framework for competition, the new US-China Board of Trade and Investment. It may well serve as a sort of bilateral World Trade Organization (WTO) for a post-WTO era.

Both sides are seeking strategic leverage: the US through tariffs and trade, China through rare earths. At the summit, the Chinese agreed to purchase Boeing jets and the US to sell Nvidia chips. Deals were also struck on certain tariff reductions and agriculture sales. China said it would address US concerns regarding rare earths but retain control over the supply.

Taiwan remains the stumbling block, of course, one that the new approach will not readily solve. The “strategic ambiguity,” as it’s often called, as to whether the US would use force to defend Taiwan is as much a question for the US to ask itself as it is a riddle for China to solve. In the meantime, the world is dependent on Taiwan due to its dominance in semiconductor manufacturing within the AI revolution. That capacity depends on Western intellectual property that lies beyond the reach of the Chinese navy — a neat epitome of the interconnectedness of the US-China relationship. This is a far cry from how the US and the Soviet Union interacted during the Cold War.

The shift to bilateralism seems a setback for the Europeans, who have tied their future to multilateralism and come to excel at operating within and leading such transnational bodies as the WTO. No longer is the agenda one of rules per se that, in principle, work for everyone. Instead, Realpolitik seems to be in the ascendancy — spheres of influence and bilateral negotiation are the order of the day. It raised eyebrows that no sooner had President Trump left Beijing than Russian President Vladimir Putin arrived for a meeting with Xi.

In the near term, we can see that China is being directly affected by what happened in Venezuela and more recently in Iran. Industrial production increased a meager 4.1% year-over-year in April, down from 5.7% in March, which underscores just how exposed Asia is to the Strait of Hormuz and to imported energy from the Middle East. The Chinese government has not addressed it from a fiscal perspective. As always, China is playing the long game, and it appears they had been waiting for the relationship with the US to become clearer.

While friction and tensions remain, there appears to be a roadmap for the future between the two superpowers.  With a series of meetings lined up in the months ahead and a new institutional body to discuss trade issues, the lines of communication are open. In the words of one commentator, we are not in a Cold War with China but rather a “Hot Peace.” Both sides seem to be realizing that a divorce helps neither due to their significant economic interdependence. The reality is that the US and China are each too enmeshed with the other to sever the trading relationship without incurring excessive costs.  Deep-seated economic and strategic competition remains in place — but both sides highlighted a preference for managing tensions.  And that is progress.