Has surprising US economic growth strengthened Washington’s hand in China negotiations?

Stronger-than-expected economic growth in the United States and China’s contrasting slow recovery could push Beijing to “be more willing to compromise” in its trade and economic negotiations with Washington, though talks are ultimately “driven by politics”, according to analysts.

The US economy expanded at an annualised rate of 3.3 per cent in the fourth quarter, the Department of Commerce said on Thursday, just over a week after China confirmed its economy grew by 5.2 per cent, year on year, in 2023.

Mainland China, though, is faced with challenges at home and abroad, and the current economic situation may mean China would “be more willing to compromise”, but not on major political issues such as Taiwan and South China Sea, according to Dexter Roberts, director of China affairs with the University of Montana’s Mansfield Centre.

After President Xi Jinping visited the US in November, both countries resumed cooperation on issues including curbing the spread of fentanyl, as well as military-to-military communication.

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Fighting fentanyl: the drug from China destroying American lives

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The two sides have also held meetings of financial and economic working groups, which were launched in September after a visit to Beijing by US Secretary of the Treasury Janet Yellen, with the aim of fostering regular communication.

But Liang Yan, professor and chair of economics at Willamette University in the US state of Oregon, said negotiations have little to do with economic strength, including interest rate differentials, capital outflows and trade.

“With lower inflation, it’s even more unlikely that they’re going to ratchet down on their tariff rates,” she added.

“It’s really politics that drive these negotiations.”

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Alfredo Montufar-Helu, head of the China Centre for Economics and Business at The Conference Board, said that the US is concerned with improving market access and China’s business environment for US firms; addressing unfair trade practices such as state subsidies; and reducing the trade deficit.

China is, he added, interested in reducing trade sanctions, preventing further tightening of tech restriction and removing Chinese entities from the US blacklist.

“Beijing does not want to reinforce or bolster the already deeply entrenched market scepticism and antipathy towards it, as it seeks to steer the country towards a steady recovery,” said Brian Wong, a fellow with the University of Hong Kong’s Centre on Contemporary China and the World.

“[And US President Joe] Biden has every reason to want to avoid getting embroiled in further military-kinetic conflicts, given the wars in Gaza and Ukraine.”

Yellen is expected to return to China this year, but her involvement may not bear fruit, analysts said, as both countries tend to preserve the status quo in their relations during an election year.

“Yellen has been marginalised in the Biden administration for a long time … she can’t add concrete value to the bilateral relationship,” said Lu Xiang, an expert on US-China relations at the Chinese Academy of Social Sciences, with the US presidential election set to take place in November.

“Now, as the current [US] government enters ‘garbage time’, it’s even harder to expect her to play a significant role.”

But on Friday, Commerce Minister Wang Wentao said that China intends to push ahead with talks that build on November’s meeting between Xi and Biden in San Francisco.

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“The two sides should strengthen dialogue and communication, striving to assist businesses in addressing a variety of challenges they face in practical economic and trade cooperation, and to tap into the potential of such collaboration,” Wang said.

American companies have expressed “their greatest concern” about the US-China relationship, and the risk of business issues is becoming politicised, he added.

“We are earnestly committed to addressing the problems that enterprises need to be solved,” he added.

Lu at the Chinese Academy of Social Sciences added that China’s economic growth is not lagging compared with other key world economies, and that a moderately high rate would likely be the “new normal”.

On Wednesday, China’s central bank moved to calm fears over a stock market rout and worries about its economic prospects by lowering the reserve requirement ratio for commercial banks by 50 basis points, effective February 5.

“China’s economic struggles could dent global growth, but the US … is unlikely to be massively affected,” said Neil Thomas, a fellow for Chinese politics at the Asia Society.

Last year, amid ongoing decoupling, China’s exports to the US fell by 8.1 per cent, year on year, but Han Shen Lin, a finance professor at New York University Shanghai, raised the possibility of “a worrisome scenario”.

“[Lagging] consumption will force China to pivot to excessive exports to trade its way to economic growth,” he said.

“Any flood of Chinese goods into the US will certainly trigger protectionist reactions in this sensitive US-election period.”

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