WASHINGTON — The United States and China are the two global economic heavyweights. Combined, they produce more than 40% of the world’s goods and services.
So when Washington and Beijing do economic battle, as they have for five years running, the rest of the world suffers, too. And when they hold a rare high-level summit, as Presidents Joe Biden and Xi Jinping will this week, it can have global consequences.
The world’s economy could surely benefit from a U.S.-China détente. Since 2020, it has suffered one crisis after another — the COVID-19 pandemic, soaring inflation, surging interest rates, violent conflicts in Ukraine and now Gaza. The global economy is expected to grow a lackluster 3% this year and 2.9% in 2024, according to the International Monetary Fund.
“Having the world’s two largest economies at loggerheads at such a fraught moment,” said Eswar Prasad, senior professor of trade policy at Cornell University, “exacerbates the negative impact of various geopolitical shocks that have hit the world economy.”
Hopes have risen that Washington and Beijing can at least cool some of their economic tensions at the Asia-Pacific Economic Cooperation summit, which starts Sunday in San Francisco. The meeting will bring together 21 Pacific Rim countries, which collectively represent 40% of the world’s people and nearly half of global trade.
The marquee event will be the Biden-Xi meeting Wednesday on the sidelines of the summit, the first time the two leaders will have spoken in a year, during which time frictions between the two nations have worsened. The White House has sought to tamp down expectations, saying to expect no breakthroughs.
At the same time, Prasad suggested that the threshold for declaring a successful outcome is relatively low. “Preventing any further deterioration in the bilateral economic relationship,” he said, “would already be a victory for both sides.’’
The U.S.-China economic relationship had been deteriorating for years before it erupted in 2018, at the instigation of President Donald Trump, into an all-out trade war. The Trump administration charged that China had violated the commitments it made, in joining the World Trade Organization in 2001, to open its vast market to U.S. and other foreign companies that wanted to sell their goods and services there.
In 2018, the Trump administration began imposing tariffs on Chinese imports to punish Beijing for its actions in trying to supplant U.S. technological supremacy. Many experts agreed with the administration that Beijing had engaged in cyberespionage and had improperly demanded that foreign companies turn over trade secrets as the price of gaining access to the Chinese market. Beijing punched back against Trump’s sanctions with its own retaliatory tariffs, making U.S. goods more expensive for Chinese buyers.
When Biden took office in 2021, he kept much of Trump’s confrontational trade policy, including the China tariffs. The U.S. tax rate on Chinese imports now exceeds 19%, versus 3% at the start of 2018, before Trump imposed his tariffs. Likewise, Chinese import taxes on U.S. goods are up to 21%, from 8% before the trade war began, according to calculations by Chad Bown of the Peterson Institute for International Economics.
One of the tenets of Biden’s economic policy has been to reduce America’s economic reliance on Chinese factories, which came under strain when COVID-19 disrupted global supply chains, and to solidify partnerships with other Asian nations. As part of that policy, the Biden administration last year forged the Indo-Pacific Economic Framework for Prosperity with 14 countries.
In some ways, U.S.-China trade tensions are even higher under Biden than they were under Trump. Beijing is seething over the Biden administration’s decision to impose — and then broaden — export controls that are designed to prevent China from acquiring advanced computer chips and the equipment to produce them. In August, Beijing countered with its own trade curbs: It began requiring that Chinese exporters of gallium and germanium, metals used in computer chips and solar cells, obtain government licenses to send those metals overseas.
Beijing has also taken aggressive actions against foreign companies in China. Orchestrating what appears to be a counterespionage campaign, its authorities this year raided the Chinese offices of the U.S. consulting firms Capvision and the Mintz Group, questioned Shanghai employees of the Bain & Co. consultancy and announced a security review of the chipmaker Micron.
Some analysts speak of a “decoupling’’ of the world’s two biggest economies after decades in which they relied deeply on each other for trade. Indeed, imports of Chinese goods to the United States were down 24% through September compared with the same period of 2022.
The rift between Beijing and Washington has forced many other countries into a delicate predicament: Deciding which side they’re on when they actually want to do business with both countries.
The IMF says such economic “fragmentation’’ is damaging to the world. The 190-country lending agency estimates that higher trade barriers will subtract $7.4 trillion from global economic output after the world has adjusted to the higher trade barriers.
And those barriers are rising: Last year, the IMF said, countries imposed nearly 3,000 new restrictions on trade, up from fewer than 1,000 in 2019. The agency foresees international trade growing just 0.9% this year and 3.5% in 2024 — down sharply from the 2000-2019 annual average of 4.9%.
The Biden administration insists it isn’t trying to undermine China’s economy. On Friday, Treasury Secretary Janet Yellen met with her Chinese counterpart, Vice Premier He Lifeng, in San Francisco and sought to set the stage for Biden-Xi summit.
“Our mutual desire — both China and the United States — is to create a level playing field and ongoing, meaningful and mutually beneficial economic relations,” Yellen said.
Xi, too, has reason to try to restore economic cooperation with the United States. The Chinese economy is under heavy strain. Its real estate market has collapsed, youth unemployment is rampant and consumer spirits are low. The raids on foreign businesses have spooked international companies and investors.
“With serious headwinds facing the Chinese economy and many U.S. firms packing up their bags and leaving China, Xi needs to convince investors that China is still a profitable place to conduct business,’’ said Wendy Cutler, vice president of the Asia Society Institute and a former U.S. trade negotiator. “This will not be an easy sell.’’
Complicating matters is that the tensions between Washington and Beijing go well beyond economics. Under Xi, the Chinese Communist Party has punished dissent in Hong Kong and the autonomous Muslim region of Xinjiang. His government made aggressive territorial demands in Asia, engaging in deadly border clashes with India and bullying the Philippines and other neighbors in parts of the South China Sea it claims as its own. It has increasingly threatened Taiwan, which it considers a renegade Chinese province.
U.S.-China tensions could intensify next year with presidential elections in Taiwan and the United States, where criticism of Beijing is among the few areas that unite Democrats and Republicans.
Xi’s policies appear to be costing China in the battle for world opinion. In a recent survey of people in 24 countries, the Pew Research Center reported that the United States was viewed more favorably than China in all but two (Kenya and Nigeria) nations.
Could China change course?
Speaking at the Center for Strategic and International Studies think tank in Washington, Rep. Raja Krishnamoorthi, an Illinois Democrat who serves on a House committee that monitors China, noted optimistically that Xi has reversed himself before — notably in declaring a sudden end to the draconian zero-COVID policies that crippled China’s economy last year.
“We have to give that possibility a chance, even at the same time that we hedge and protect our interests,’’ Krishnamoorthi said. “That’s what I’m hoping we also see come out of this meeting.’’
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
