China and the United States could not have more at stake when Chinese President Xi Jinping meets with President Obama today in Rancho Mirage, Calif.
The trip is China’s first state visit to the United States in nearly a decade. The stakes on trade, investment and economic relations are high. Xi comes off as, perhaps, the most powerful foreign leader visiting the United States in decades. Yet the meeting between Xi and Obama will also be the last bilateral trip for Xi to the United States, at least until 2024, in light of the call for the two countries to start bilateral visits to every major country.
So how high are these stakes?
U.S. exports to China made up about 30 percent of U.S. global exports and account for 10 percent of all U.S. exports last year. More than half of U.S. imports from China were consumer goods like furniture, clothing and electronics last year, accounting for roughly two-thirds of U.S. exports of these goods from China.
China and the United States have also become friends again. From 2008 to 2012, the United States had a trade deficit with China of more than $500 billion a year. During this period, much criticism of China’s trade practices caused some bilateral cooperation. The United States allowed China to hold a top-five position on the semi-annual World Trade Organization (WTO) Trade Marks’ Round, and China was allowed to join WTO in 2001, in order to smooth the way for more integrated free trade policies across the Asia-Pacific region.
However, when the United States and China started to climb the global economic ladder, U.S. incomes tumbled. By early 2010, the U.S. trade deficit with China had spiked to almost $150 billion a year, and many Americans were outraged that their imports of Chinese goods were outpacing U.S. exports. Consumer discontent created an anti-China wave. Congressional majorities in the House and Senate started agitating for protectionist measures.
During this period, after the WTO failed to pressure China to make reforms on intellectual property rights, worker protection and market access, U.S. products like peanuts started to look more appealing to Chinese consumers.
Recently, Chinese president Xi Jinping launched a campaign against China’s “Made in China 2025” economic reform platform. The program contains ambitious plans to accelerate the country’s shift toward “high-end” manufacturing and high-tech industries. By 2015, the plan had resulted in more than 20,000 new advanced manufacturing universities and training centers throughout China, increasing the country’s ecosystem for advanced manufacturing. At the same time, technological innovation has been increasingly a topic in U.S. presidential campaigns.
These changes should be watched because they could have implications for U.S. companies. China’s Xi and Obama will likely address how the two nations can move forward together as America’s jobs market struggles, despite the millions of jobs created in the past few years. Moreover, the challenges created by the rise of robotics and artificial intelligence have forced American companies to make dramatic changes to how they create value and compete in the future. As examples, in the past few years, General Electric (now part of Baker Hughes) and Boeing (now part of Airbus) re-located operations to countries with more attractive business environment and tax regimes, like the United Kingdom and Australia. Google and Apple have recently announced that they are moving their headquarters to data centers in the United States.
China and the United States also need to move forward on some important trade issues. The United States wants to remedy China’s concerns with the WTO. China and the United States have an interest in finding a way to close the last remaining semiconductor production capacity in China and an American demand that China ratify the Financial Services Agreement. However, such issues are complex and of the importance will not be easy to resolve. In a recent Wall Street Journal op-ed, University of California, San Diego assistant professor Yuval Shany and Mark Krugin wrote that because of the importance of investment and jobs, negotiators will have “little room for compromise.”
Hopefully this final meeting between Xi and Obama will demonstrate that they want to address the challenges the two nations face and move on to other more substantial issues. Hopefully, even if the issues on the table will not be easy to resolve, the U.S. economy will continue to do well.