The establishment of the US–China economic and financial working groups in September 2023 marked a noteworthy pivot in the often-volatile relations between Washington and Beijing. Amid the escalating tensions of what is widely recognised as ‘great power rivalry’, these working groups have the potential to foster greater stability between the world’s two largest economic superpowers.
In recent years, ‘decoupling’ has become a buzzword that symbolises the United States and China’s intent to disentangle their economies. The establishment of the working groups challenges this notion to an extent. While certain dynamics of the ongoing trade war and the pandemic may have hinted at a move towards reduced interdependence, complete economic decoupling is likely to harm both the United States and China. Astute policymakers on both sides are wary of the risks associated with decoupling. The reality remains that bilateral economic ties are characterised by intrinsic interdependence.
Trade between the United States and China has remained substantial. As of August 2023, the total value of the US trade in goods with China exceeded US$369 billion. China has also been one of the largest foreign creditors to the US government, holding US$821 billion worth of US Treasury bonds in July 2023.
The working groups will serve as a forum for bilateral policy exchange. Under the guidance of high-ranking officials from both countries, they offer a structured channel for sustained dialogue, promising several benefits.
Supported by US Treasury Secretary Janet Yellen and China’s Vice Premier He Lifeng, along with regular meetings at the vice-ministerial level, these working groups are well-prepared for consistent and high-level interactions. Such continuity ensures that discussions can move beyond superficial exchanges and delve into more substantive policy matters.
In the intricate realm of international relations, transparency — or a lack thereof — can be a significant destabilising factor. The US–China working groups, by promoting frank dialogue on macroeconomic and fiscal trajectories, can mitigate uncertainties that might otherwise inflame tensions. Direct communication is one of the most effective tools in preventing misunderstandings. These working groups offer an opportunity for both nations to clarify their positions, objectives and concerns directly without the distortion of third-party interpretations. The US–China working groups have the potential to act as a fulcrum for stabilising economic ties. Regular interactions at the bureaucratic level can build a foundation of trust, which is often missing in high-stakes diplomatic negotiations.
East Asia Forum Balancing optimism with realism is crucial. While the inception of the working groups is a laudable stride towards de-escalating tensions, it is not a silver bullet for all bilateral challenges.
During the initial meeting of the financial working group, differences emerged, notably in the discussion of the International Monetary Fund (IMF)’s quota-based lending resources. The United States advocated for an increase in IMF quota-based lending resources without changing its shareholding structure, while China showed reluctance to support this proposal without an increase in its IMF shares.
Secretary Yellen expressed optimism for an ‘equi-proportional’ quota increase, where each member country’s contribution to an increase in quotas is proportional to their current IMF shareholdings. This divergence reflects broader disagreements between the United States and China on financial and economic cooperation.
The working groups may face challenges in addressing structural trade imbalances, as the capital account can drive the current account and low-cost Chinese goods continue to retain their global competitiveness. In the domain of high-tech competition, security imperatives will continue to drive intense rivalry. The US government may sustain pressure on the Chinese government, as indicated by Commerce Secretary Gina Raimondo during her Beijing visit, when she said the United States will not compromise or negotiate in matters of national security.
At the same time, Beijing’s increased industrial policies and domestic content requirements might impede US businesses from penetrating the Chinese market, potentially exacerbate technological contestations.
Given the overarching significance of the US–China relationship on the global stage, their choices can recalibrate global markets, influence worldwide innovation and redraw the geopolitical cartography for generations. As global stakeholders keenly monitor the evolving US–China interplay, the working groups, while not a panacea to address fundamental problems between these two great powers, illuminate potential for rivalry and collaboration to coexist. The working groups also demonstrate that astute diplomacy can foster mutual respect and understanding.
Such platforms for dialogue are not only beneficial but crucial for US–China relations, especially in the context of their great power rivalry.
Yuhan Zhang is a scholar based at UC Berkeley specialising in China’s political economy. He is also an adjunct assistant professor at the G20 Center of Beijing Foreign Studies University’s International Business School.
East Asia Forum