Three Major Factors Contributing to Strained Relations Between the United States and China

Janet Yellen, the US Treasury Secretary, and He Lifeng, China's Vice Premier, held a two-day meeting in California's San Francisco on Thursday, November 9th, 2023. Yellen disclosed that the discussion focused on the use of security measures in commercial relations. A photo of the two leaders taken by David Paul Morris/Bloomberg via Getty Images was captured. The meeting was held in anticipation of the upcoming talks between Biden and Xi.

 This is the Editor's Note: Subscribers are encouraged to register for CNN's Meanwhile in China publication, which delves into the ramifications of China's growth and its implications globally.

CNN reports from Hong Kong --

 When [the leaders of the world's two greatest economies] meet on Wednesday, there will be a lot to talk about, which will be the first time in one year.

 At the upcoming Asia-Pacific Economic Cooperation (APEC) summit in San Francisco, President Joe Biden and Chinese President Xi Jinping will likely be engaging in talks about a range of complicated topics, including trade, technology, and investment according to CNN.

 Radical steps have been taken to increase amicability between the two sides after an active period of diplomacy throughout the summer.

 Despite a degree of stabilization in the relationship, specialists consulted by CNN have noted that they are not anticipating any remarkable progress to be made at these high-stakes negotiations taking place this week.

 In Shandong Province, China, a coal power plant was visible in operation on September 27, 2021. China is the biggest contributor to carbon emissions, and has plans to reach their peak by 2030 and become carbon neutral by 2060. After some issues with power supply led to factories being shut and homes being left without electricity, the Chinese government has highlighted the importance of traditional energy supply, which is causing worries for environmentalists ahead of the upcoming UN Climate Change Conference in Glasgow.

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 Ahead of the upcoming Biden-Xi summit, the US and China have agreed to increase their use of renewables in lieu of fossil fuels to prevent global warming.

 At the November 15th summit, the United States and China announced a joint commitment towards the efforts to tackle climate change. The two countries vowed to work together in order to reduce carbon emissions and to find solutions to the global climate crisis. This initiative marks a major step forward in the fight against climate change, and signals a new level of cooperation between the two nations.

 It is of great significance to the international economy to discover approaches to "resume a regular path" –to quote Biden --.

 According to Scott Kennedy, trustee chair in Chinese business and economics at the Center for Strategic and International Studies, if nations fail to cooperate, the worldwide economy will be divided into many smaller parts, resulting in slower growth and increased disparities.

 The potential for negative consequences is exceptionally high, making this gathering an ideal moment to advance further due to the restoration of communication from the previous twelve months.

 the following are the principal economic matters between the two nations, as well as what is on the line:

 Trade interactions decreasing

 In the last few months, American authorities have suggested the necessity of "de-risking" from China, which would mean minimizing dependence on Chinese markets and suppliers, while still maintaining links.

 The Biden administration has set forth a plan to limit the U.S.’s exposure to greater geopolitical volatility and has made it clear that it does not intend to completely detach the economic powerhouses of the world.

 Chenggang Xu, a senior research scholar at the Stanford Center on China's Economic and Institutions, has noted the transformation that can be seen in recent trade data.

 He remarked that for a lengthy period, China was the US's primary trading partner, but it has since dropped to third place.

 The United States' two largest trading partners in the first nine months of the year were Mexico and Canada, respectively accounting for 15.7% and 15.3% of total US trade, as opposed to China's 11.1%, as per the most recent US government data. This eclipsed the world's second largest economy.

 At the Port of Oakland in California, photographs show shipping cranes looming over container ships. U.S. authorities have cautioned that these Chinese-made cranes might be utilized as a spying instrument by China, allowing them to monitor the final destination of containers and collecting information on materials being sent in/out of U.S. ports to assist in U.S. military operations globally. (Photo by Justin Sullivan/Getty Images).

 Despite the tensions between the two biggest economies, the trade between them still hit an all-time high in 2022 with a value of almost $691 billion, making the United States the number one trading partner of China after the Association of Southeast Asian Nations and the European Union.

 A report from the American Chamber of Commerce in Shanghai in September showed that 40% of those surveyed were either currently redirecting or intending to reallocate investments that had initially been earmarked for China.

 This is a screenshot of a conversation between Gina Raimondo and Christiane Amanpour on November 9, 2023.

The evidence indicates that the use of technology in the classroom can have substantial benefits. It is believed that technology can help to engage students, provide access to resources, and enable collaboration with others. Through utilizing technology, students can be exposed to a vast range of materials and have the opportunity to interact with peers from around the globe. As a result, teachers can take advantage of the advantages technology provides in the classroom, allowing for a more stimulating learning experience.

 Raimondo, the Governor of Rhode Island, is aiming to strengthen relationships with China despite the current strain in technology and Taiwan-related matters.

 On 11th November 2023, Rhode Island Governor Gina Raimondo spoke to CNN's Christiane Amanpour about the changing dynamics between the United States and China in terms of commerce. Raimondo stated that both countries need to come together and negotiate in order to address the current issues and benefit both nations. She further asserted that the U.S. must take a careful approach to ensure that the Chinese economy does not suffer too much, since that could ultimately be detrimental to the American economy.

 Xu commented on the current tendency of "decoupling" or "de-risking," noting that certain U.S. businesses were even withdrawing entirely from China, such as asset management firm Vanguard.

 In the three months ended September, a yardstick of foreign direct investment into China showed a negative result for the first time in a quarter of a century. This implies that foreign companies are transferring their capital away from China.

 The geopolitical tensions, mainly Russia's invasion of Ukraine in 2022 and the potential risks of raids and detentions of executives in China, have made companies increasingly nervous. This year, a stern crackdown on international consulting firms by the Chinese government has caused business risks to multiply, leading US Commerce Secretary Gina Raimondo to label China as "uninvestable".

 However, the secretary has insisted that American businesses should keep growing in the nation, signifying the intricacies of the alliance.

Growing Conflict over Chips

 An intensifying battle between chip makers is occurring, with no sign of abating.

 In the last twelve months, a quarrel between the two parties has been increasing in intensity concerning China's access to the most up-to-date semiconductors, along with the materials and machinery that are necessary for constructing the technology.

 In October 2022, the US government had first established sweeping export controls, and last month, citing national security, they further tightened these by reducing the kinds of semiconductors that American firms could export to China.

 The Biden administration has taken steps to avoid the possibility of the hardware being employed for the benefit of the Chinese military, as well as to fill in any gaps in already existing rules. In response, Beijing has denounced the US for "utilizing trade and tech matters for aggressive purposes."

 Nvidia (NVDA), has been obliged to change its distribution of superior chips to China and expressed a potential "long-lasting loss of opportunities" ultimately, due to the limitations.

 The Semiconductor Industry Association, representing American chipmakers, has reported that China is the biggest purchaser of semiconductors in the world, making up 36% of sales for US companies.

 Employees wearing cleanroom suits are seen in the main bay of the GlobalFoundries semiconductor production plant in Malta, New York, USA, on the 16th of March 2021. This has become a major point as the economic recovery from the pandemic is stalled in some areas due to a shortage of necessary electronic components. Adam Glanzman of Bloomberg via Getty Images captured the picture of the US-based chipmaking companies, which are reliant upon China for a vast portion of their sales.

 The organization has urged both countries to reduce their tensions via discourse, expressing that overly broad limitations could "motivate foreign customers to seek out alternative options."

 In August, the Chinese government put restrictions on the exporting of gallium and germanium, both of which are necessary for producing semiconductors. The US Geological Survey has stated that the nation is far and away the biggest supplier of gallium and one of the leading suppliers of germanium on the planet.

 n October 2023, shortly after the US government announced new restrictions on chip exports, China revealed plans to reduce graphite exports for reasons of national security. Graphite, a mineral used in making batteries for electric vehicles, was the target of the restrictions.

US amps up tech rivalry by ceasing Chinese access to AI chips

 Recently, other nations have been embroiled in the dispute. Japan and the Netherlands have adopted a similar approach to the US, by imposing restrictions on the exportation of sophisticated semiconductor production equipment due to security concerns.

 Beijing has stated that some nations have employed pressure tactics to force other countries into implementing restrictions, though they have not referred to the US by name.

 The author of "Sovereign Funds: How the Communist Party of China Finances its Global Ambitions," Zongyuan Zoe Liu, who is also a fellow for China studies at the Council on Foreign Relations (CFR), stated that businesses and governments globally do not want to feel obligated to pick between the US and China.

 The gathering of these two heads of state is a sign that they are taking steps towards making an effort.

More stringent investment control

In the month of August, the White House declared that investments in China for advanced technologies such as artificial intelligence, quantum computing and semiconductors would be restricted to protect national security and to ensure American funds will not be utilized in the military.

 Experts say the executive order marks a shift from former US policy, despite Congress having labored on comparable legislation and Donald Trump, when he was President, having voiced backing for more rigorous investment restraints.

 Draft regulations set to be implemented in the upcoming year will affect investments made by American venture capital and private equity companies, in addition to joint ventures.

 CNN has been informed by investors and analysts that the limits imposed will only worsen the falling number of transactions between the US and China, which had already been dwindling.

 Data from PitchBook shows that in the third quarter of the current year, investments from US venture capitalists in China amounted to approximately $300 million, a drastic decrease from the $2 billion of the same period the preceding year. 

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Restrictions on US investment have dealt a tremendous setback to Chinese startups.

 The US and China recently issued restrictions on tech investments, resulting in a global slump in the industry. This decision by the two countries has caused a decrease in the number of investments in the tech sector across the globe. The current restrictions have come as a shock to many investors, and the effects of this decision are likely to have long-term implications for the industry.

 In an effort to reduce risk, some firms have decided to divide their US and Chinese operations.

 In June, Sequoia, a major international venture capital firm, made the initial move to differentiate its operations into three entities that concentrate on distinct regions, and this was duplicated in September by GGV Capital, another venture capitalist from Silicon Valley.

 The intricacies of managing a multinational corporation were discussed by both. Moreover, their massive investments in China have been noticed by US legislators due to the escalating tensions with China.

 PitchBook analysts stated in a report from September that while Sequoia's choice probably wasn't a direct reaction to US-China disputes, the extra difficulties that have sprouted up likely pushed this separation to occur sooner than intended, alluding to the Biden administration's fresh investment regulations.

 Analysts have suggested that if the US and China don't ease their tensions, further separations may be unavoidable.

 Various US businesses that have considerable investments in China, such as Apple and Tesla, may be put under heightened examination. Tuesday, a congressional advisory panel indicated that legislators may be considering making it mandatory for publicly-traded businesses to deliver more thorough reports of their involvement in the country.

 The US-China Economic and Security Review Commission stated in a report that data may consist of details regarding the total assets of an organization in China or "any impact of personnel connected to the Chinese Communist Party in corporate decision-making."

The challenges in the US-China relationship are still numerous, so there are not high expectations for the Biden-Xi meeting, according to Liu, the CFR fellow.

Provided that nobody exits the gathering early, I deem that to be a favorable indication.

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