Venice, Italy – Multilateralism came into play as the finance chiefs of the Group of 20 major economies joined hands on Saturday to back once-in-a-century international tax rule changes, but the move did not signal any better relations between the two key members of the forum — the United States and China.
Some U.S. experts on China expect no breakthrough anytime soon in the strained ties between the world’s two largest economies, while other analysts warn that Japan, a U.S. security ally with close trade ties with China, should accelerate efforts to hedge against potential economic risks stemming from what some view as a new “Cold War.”
A series of G20 ministerial meetings have been taking place in Italy in the run-up to a summit meeting scheduled for late October, where U.S. President Joe Biden may have a chance to hold his first face-to-face meeting with Chinese leader Xi Jinping since taking office in January.
But Zack Cooper, an expert on U.S.-China relations at the American Enterprise Institute, was skeptical that momentum is building up toward bilateral engagement.
While the two countries may have some interactions later this year, including a possible Biden-Xi meeting, the senior fellow at the Washington think tank said he would not expect “much substantive cooperation” to come out of such talks.
“I think the tension will continue,” he said, adding, “The problem is our underlying interests and values are very different. And I don’t think a bit of dialogue is going to solve that.”
Biden’s White House has been building on the tough China policies of his predecessor, President Donald Trump, with more emphasis on human rights issues. As it rallies allies to counter Beijing, which it views as acting more repressively at home and aggressively abroad, it has called for democracies to outpace autocracies in the race to compete.
One reason for Washington’s push for a G20 agreement on plans to tax multinationals during two days of talks that ended Saturday in Italy may have been to help address its disputes with European allies over imposing levies on U.S. big tech firms, Cooper said.
“So even if there is agreement on tax, I sort of see that as an effort by the Biden team to try and unite a bit more closely with democratic allies and partners to avoid divisions that might create problems with the Chinese down the road,” Cooper said.
Since Biden assumed the presidency, top diplomats of the two countries have so far met once face-to-face in March in Alaska, laying bare their deep disagreements on human rights issues, Taiwan and what international order they view as desirable.
As the Beijing Winter Olympics approaches in February, China could face even more pressure over its poor human rights record, with calls already emerging inside the United States to resort to some form of boycott as a punishment over China’s alleged abuses against the Muslim Uyghur minority in the western Xinjiang region.
But it would likely be difficult for the Chinese leadership to take any actions that could be perceived as backing down, as next year will also be crucial for Xi in further consolidating his power through a twice-a-decade Communist Party congress in the fall.
In a speech on July 1 to mark the 100th anniversary of the party’s founding, Xi was defiant, saying that the Chinese people will “never permit any foreign forces to bully, oppress or enslave us” and emphasizing that China’s “complete reunification” with Taiwan is a “historic mission and an unshakable commitment” of the party.
With Xi believed to be aiming to be re-elected as leader of the Communist Party at the congress for an unusual third term, Cooper said the party will likely be hoping next year will go “very smoothly” and will “react quite angrily to criticism of China and Xi in particular.”
On the economic front, China may be hoping to see the removal of punitive U.S. tariffs imposed on hundreds of billions of dollars’ worth of Chinese products amid an escalating trade war under the Trump era.
But a major reduction in tariffs may require a substantial commitment from China to address U.S. concerns on intellectual property theft and extensive use of industrial subsidies, among other issues, which again may be a high bar for Beijing.
Takeshi Makita at the Japan Research Institute said the United States and China have entered a phase of “competition for global hegemony,” although the possibilities of imminent military clashes and a broad decoupling of the two economies seem low.
The research director, however, said Japan should still be prepared for the potential consequences of a heightened showdown between Washington and Beijing, making sure that its economy can grow while avoiding being caught in the crosshairs.
“If the United States and China see a sharp escalation of their confrontation and Japan has to (follow the United States to) take a more confrontational approach as a member of the democratic countries, China will certainly take retaliatory actions that will lead to a decline in exports, a downturn in Japanese businesses in China and a decrease in Chinese tourists,” Makita warned.
The adverse economic impact from a deterioration of Japan-China ties would be difficult to ignore, Makita said, citing data showing that Japanese exports of goods and services to mainland China and Hong Kong represented about 4% of the country’s gross domestic product in 2019.
The percentage was the highest among the Group of Seven industrialized countries. For the United States, the same figure stood at about 1% of its GDP in 2019.
Makita said Japan should step up efforts to create products and services that are vital to China and difficult for other countries to supply, noting that Japan is strong in sectors such as parts, industrial machinery and material.
“Even though Japan’s semiconductor industry is faltering, our country has a leading share in related material such as vinyl chloride. … Creating a situation in which China cannot make general-purpose products without Japanese parts and material will be the best defense,” he said.
He also said Japan should find ways to benefit from a void that would likely be created in the U.S. market as Washington seeks to reduce its reliance on Chinese goods in the longer term, and try to lure more visitors from the United States and Europe in an otherwise China-dependent inbound tourism market.
The Japanese government needs to expedite its efforts to brace for a new “Cold War,” Makita suggested.
“There have been some moves (to draw up a strategy) but they have started out very late,” he said, saying persistent reluctance inside Japanese business circles to prepare for such risks may have been one of the reasons for the delay.
“Japan has also lacked awareness of the risks over the Taiwan contingency,” he added, referring to China’s threat to use force if necessary to bring about eventual reunification with what it views as a renegade island province.
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