The business world is holding its breath as Chinese leader Xi Jinping issued a stark warning to the United States against escalating the trade war. In a meeting with the heads of several global financial institutions, including the World Bank and the International Monetary Fund, Xi said such a spiral of tensions would lead to a deadlock with no winners.
The warning comes shortly after Chinese regulators announced an antitrust investigation into U.S. chipmaker Nvidia. The move is widely seen as a significant escalation in the battle for supremacy in artificial intelligence, a strategic area crucial to national security in both Washington and Beijing, even before Donald Trump potentially returns to the White House.
“Tariff, trade and technology wars run counter to historical developments and economic laws, and will only bring pain and damage to all parties involved,” Xi said, according to state television CCTV. He stressed that turning inward, symbolized by building “small yards with high walls” and “decoupling and breaking chains,” would only harm others without benefiting oneself. He reaffirmed China’s belief in shared prosperity, stressing that China’s well-being contributes to global well-being, and vice versa.
For his part, U.S. National Security Adviser Jake Sullivan used the phrase “small yard and high fence” to describe a strategy that allows most trade with China to continue as normal while imposing restrictions on some goods, including high-tech products such as semiconductors deemed to have military applications.
The new Biden administration recently announced export restrictions, limiting Beijing’s access to about 20 types of equipment for producing semiconductors and advanced memory chips, as well as controls on more than 100 Chinese companies.
With a trade war looming, China is seeing its exports slow even though they remain a key driver of its economic growth. Official figures show that exports stagnated in November, growing just 6.7%, well below economists’ forecasts and the 12.7% increase in October.
The need to prepare for “external shocks” was underscored at the Chinese Communist Party’s Politburo meeting, which announced the adoption of a “moderately accommodative” monetary policy for next year, marking a rare easing in monetary policy in a decade.
In this new era of economic uncertainty, international trade relations will have to reinvent themselves to meet current challenges and maintain a balance of shared prosperity.