As the American and Chinese Presidents Meet, Big Questions Hang Over the Nations’ Economic Relationship

Today, President Joe Biden is meeting with his Chinese counterpart, Xi Jinping, outside San Francisco. It is the first time the two leaders have met in a year, and comes at a time of ongoing geopolitical tensions, particularly related to Taiwan and China’s increasing global influence.

American leaders have stressed that the American and Chinese economies remain intertwined, with more than $700 billion in trade between the two nations in 2022. But deteriorating U.S.-China relations have left many American businesses in a difficult position, since China is the world’s largest consumer market and also a major manufacturing center, producing everything from fast fashion to the most advanced iPhones. At the same time, U.S. businesses report an increasingly difficult operating environment, with geopolitical tensions and new regulations on both sides of the Pacific disrupting the relationship.

In September, the U.S.-China Business Council, a Washington, DC-based advocacy group for companies that do business in China, released an annual survey of its members and found that 43 percent of respondents thought the business environment was deteriorating (another 39 percent said it was not improving). And 83 percent of respondents were less optimistic about the business environment than they were three years ago.

Perhaps hoping to reverse that trend, corporate leaders, including Tesla CEO Elon Musk and representatives from Citibank and Microsoft, are reportedly meeting with President Xi during his visit. Musk, whose company Tesla manufacturers and sells cars in China, said that the two economies were like “conjoined twins” during a visit to Beijing and Shanghai this year.

Even as U.S. officials have put increasing pressure on China, many don’t anticipate a full decoupling. “We expect China to remain a major player on the world stage for the foreseeable future,” Biden adviser Jake Sullivan wrote earlier this year.

For U.S. businesses that have customers or that manufacture goods in China, geopolitical tensions are a major concern. Today’s meeting is expected to last up to four hours and business leaders may hope some of the following issues come up.

Supply Chain Dependence

Through the end of last year, China placed tight restrictions on its population to control the spread of Covid. The resulting delays and shortages taught many American businesses the dangers of relying on China for so much of their supply chain. Yet many companies have found it difficult to diversify and branch out into other countries because of the robust manufacturing capabilities within China.

Increasing Regulations

American companies with operations in China are also dealing with a tighter regulatory environment, including increasing burdens from new laws on data transfers and cybersecurity. In the USCBC survey, 97 percent of respondents said they were “very” or “somewhat” concerned about the impact of those regulations on their businesses. American companies have also been caught up by national security laws that appear to be capriciously enforced: Chinese offices of consulting firms Bain & Company and Mintz Group were raided earlier this year. Venture capital firm Sequoia Capital spun off its China business earlier this year, citing the difficulty of doing business across both jurisdictions.

Barriers to Entry

U.S. companies operating in China also report increased barriers to entry and competition from domestic firms, which often receive government subsidies that support China’s high-tech manufacturing sector. In particular, American officials have raised concerns about Chinese subsidies for steel, solar panels, and EV batteries.

Tariffs and Export Controls

From the U.S. side, President Trump imposed significant tariffs on Chinese goods and export controls on technology components to China. President Biden has largely continued those policies, and added new restrictions, putting a strain on American companies that supply to or purchase from China. In return, China has introduced its own restrictions on exports. For example, earlier this year China placed restrictions on rare earth minerals used in EV batteries and electronics. In the USCBC survey, 20 percent of respondents said they lost sales because of tariffs imposed by the United States, and 9 percent because of tariffs imposed by China.