It Might as Well be Spring

Will the G7 & Congress prevent a thaw in US-China relations?

Over the past few days there has been a series of announcements that could signal a new direction in the most critical relationship in the global economy. As the engines of growth in China and the US decelerate, has there been a more realistic appraisal of the costs of growing belligerence by both Chinese and American policymakers?

During the May 1st holiday it has been relatively quiet in China, but on the US side, a bevy of announcements was made last week:

• Secretary Blinken offered remarks that seemed to approve, or at least not disapprove of China’s role as mediator in the Ukraine War.

• The Director of Intelligence, the hawkish Avril Haines has said that although China is building its military capacity, she believes that Xi Jinping is leaning towards peaceful reunification with Taiwan.

• US climate envoy John Kerry says China has invited him for talks. The Chinese might think that Kerry is the real Secretary of State.

• The Biden Administration approved an increase in the number of Chinese airline flights to US. Still a fraction of those taking place pre-Covid.

• The Pentagon said it is trying to arrange meetings with Chinese counterparts on the sidelines of meetings in Singapore next month.

• The US Food and Drug Administration will resume inspections in China postponed since March 2020 as soon as this summer.

Taken separately, these actions do not mean that a thaw is in progress, but the concatenation of announcements must be sending a message to officials in Beijing. However, the momentum gained so far could be interrupted this May by the upcoming G7 meeting in Hiroshima, and a debt emergency in the US.

The G7 meeting beginning on May 19th, to which China is not invited, is being seen as an opportunity to align the interests of member countries to oppose Russia in Ukraine, and push back on any plans China might have to isolate or attack Taiwan. Depending on the language of joint statements, G7 messaging could override other US actions. At the same time, other countries are formulating their own China policies, which could make creating a consensus on China difficult.

In the background, most economists are predicting some level of slowdown in 2023. Market participants on every level are hoping that the leaders of China and the United States in particular will provide greater policy stability in the coming months as a basis for continued growth.

I have a personal connection to Hiroshima, and hope that peace and prosperity will be high on the list of concerns of all attendees, given the location of the meeting and its grave historical significance.

Hiroshima, site of the 2023 G7 Meeting