The first direct meeting between Presidents Donald Trump and Xi Jinping in Seoul, South Korea, is anticipated to lead to a resolution to lower trade tensions between the US and China.
Whatever they agree on on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in South Korea on Thursday, aside from Trump and Xi’s representation of Washington and Beijing, will have an impact on the world economy as a whole.
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The US and China have unmatched influence on global stability and prosperity because they are the two largest economies in the world.
Together, they account for nearly half of the world’s manufacturing output and 43% of the global GDP.
Their two-way trade alone generated $585 billion in 2024.
A full-fledged US-China trade war or decoupling would almost certainly have a negative impact on global economic growth.
According to the World Trade Organization, the US and China’s economic division would result in a global GDP decline of nearly 7% over the long term.
Heiwai Tang, director of the Asia Global Institute in Hong Kong, declared that the US-China relationship is “the most significant bilateral relationship.”
According to Tang, “Any de-escalation in their tension will have significant effects on smaller economies that depend on trade with either of the superpowers,” Tang said.
“The question is how long the agreements can last, whether it’s about China purchasing more soybeans or about the US lowering its tariffs on China.”
Trump and Xi’s summit on Thursday follows mutual threats to sharply escalate their conflict after months of back-and-forth trade spats between Washington and Beijing.
Concerned by Beijing’s plans to impose stringent export controls on rare earths, which are essential for everything from fighter jets to smartphones, sparked by concerns about significant disruption to global supply chains earlier this month.
Trump responded by threatening to impose an additional 100 percent tariff on Chinese goods, which raises the possibility of a successful trade embargo between the two countries.
The measures are viewed by economists as being significantly more disruptive than statements of intent because they are so economically disruptive.
According to Henry Gao, an expert on international trade at Singapore Management University, “if they were enforced, they would have devastating effects on the global economy and could easily backfire on their own economies.”
“I’ve always argued that these tools should be promoted rather than deployed to entice the other party to the table,” he continued.
US officials have stated that Trump and Xi will work to prevent further escalation in the weeks leading up to the summit.
This week, US Treasury Secretary Scott Bessent stated in press interviews that he anticipated a deal to defer China’s tariffs and export restrictions.
Rolf J. Langhammer, a researcher at the Kiel Institute for the World Economy in Germany, quoted Trump as saying, “De-escalating the trade war, and perhaps even more importantly, the tech war, is of huge importance for the world economy, which was severely hit by the shocks and uncertainty triggered by the US president after April 2 and that it is of paramount importance.
It might stabilize expectations for the time being, at least temporarily, and inspire investors to put their decisions in perspective rather than delay them because of concerns about potential new overnight shocks.
The global economy has so far emerged relatively unscathed despite the US-China conflict having caused a sharp decline in their trade, with exporters diversifying into Southeast Asia, Latin America, Europe, and Africa.
The IMF earlier this month increased its GDP growth forecast for 2025 from 2.8% to 3.2%, which is an increase over the 2.8% that Trump announced in April. The majority of his “liberation day” tariffs have been delayed or significantly decreased.
If the US and China are unable to resolve their differences in full, the outlook could change dramatically.
Trump and Xi are expected to ease their country’s conflict for the time being, but there are low hopes that Washington and Beijing will put their long-term differences behind them.
The fundamental incompatibility of the two superpowers’ economic models had become impossible to ignore, according to Jacob Gunter, an analyst at Berlin’s Mercator Institute for China Studies.
Gunter told Al Jazeera, “These irreconcilable differences exist.”
Gunter said it was difficult to imagine China abandoning its state-led export business model, or the US allowing Chinese imports to be fully regulated and lifting Chinese technology controls.
Source: Aljazeera
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