Biden’s populist appeal translates into anti-monopoly campaigns, proposals to tax big corporations and the very wealthy, and complaints about firms charging excessive prices. These sentiments are accompanied by increased support for infrastructure investments as exemplified by his “Build Back Better” framework. Biden also sees himself as a “labour guy” in reaching out to unions as part of his campaign to help the middle class.Much of this was seen as a backlash against those that made a fortune in property development or through the digital economy and financial engineering. It also reflects a broadly shared perception among China’s leadership that the US economy – characterised by the prominence of Wall Street and Silicon Valley – is not to be emulated in the aftermath of the 2008 global financial crisis.

05:27

‘Socialism with Chinese characteristics’ explained

‘Socialism with Chinese characteristics’ explained

Both Xi and Biden stand for a people-centric approach to economic policies. Beijing’s campaign against big tech finds its parallel in Washington’s targeting of Apple and Microsoft. Xi’s common prosperity drive, in favouring the poorer interior provinces, has similarities with Biden’s intention to bring more manufacturing jobs to lagging Midwestern states.Xi’s efforts to moderate income disparities and return more enterprise profits to society share a kinship with Biden’s pleas that the very wealthy should pay their fair share of tax. Xi’s scaling back of market-based reforms and internationalisation as depicted in his “dual circulation” strategy is in line with Biden’s promotion of protectionist policies.

Xi shares Biden’s beliefs that, left unchallenged, the market would channel more resources to speculative and frivolous activities rather than “real” society needs.

Such similar aspirations, however, has not led to cooperation but to conflict in what is seen as a zero-sum game between the two nations. The first source of tensions is attributed to trade’s role in linking both economies.

China’s success in lifting hundreds of millions of its citizens as well as others in Asia out of poverty and into the middle class through exports of manufactured goods to the West has led to a sharp reduction in inequality at the global level.

There has been a simultaneous stagnation in the incomes of the US (and European) middle class, increasing inequality nationally. Linking these two trends with trade forms the US argument for punitive tariffs and investment restrictions targeting China.

But this argument is flawed even as it has become popular wisdom for US politicians and the public. China’s trade surpluses as a share of gross domestic product soared only after it joined the World Trade Organization in 2001, peaking around 2007 before declining steadily until the eve of the trade war in 2017.

The decline in the share of US manufacturing employment spans some seven decades, falling from a high of 38 per cent during World War II to 10 per cent by 2022. Neither the rise of China nor its trade drove this decline, which was due to productivity increases associated with automation, robotics and technological improvements.

A booming US economy and a Chinese crash? Think again

Also largely ignored is that, before the trade war, the interaction between the two economies was generally seen as beneficial. But America’s punitive tariffs have not been helpful. Studies show that US consumers and producers have borne much of the burden of the tariffs through higher costs.While US direct imports from China have fallen, its indirect imports have risen, with Chinese components coming from countries like Vietnam and Mexico. The net result is that China’s share of global exports has hit record highs even as its direct exports to the US fall.

The second source of tensions arises from the competition for technological leadership and the implied security risks. For the US, the fear is losing its status as the dominant technological power. For China, the concern is that the US seeks to thwart its tech ambitions.

27:21

Biden’s China tech policy goal: a 10 year handicap

Biden’s China tech policy goal: a 10 year handicap

Reciprocal punitive actions and wasteful expenditure will lead to income declines for both sides, and the global economy. US Treasury Secretary Janet Yellen’s recent visit to Beijing to complain about how China’s green technology-based exports threaten US efforts to build its green tech industry is yet another example of how similar objectives lead to conflict.Moreover, once security implications come to dominate policy discussions, it becomes impossible to reasonably deal with allegations of risk, as seen in recent controversies over attempts to ban TikTok or cyberfears over Chinese-made port loading cranes. Given the lack of trust, the two sides cannot agree on what are acceptable security risks – or how to mitigate them.

Yukon Huang is a senior fellow at the Carnegie Endowment for International Peace