US and China agree that they need each other to stay economically on top

US President Donald Trump and Chinese President Xi Jinping have both acknowledged that their countries cannot afford to break economic ties if they want to dominate global markets.

During a virtual speech at the World Economic Forum yesterday, Mr. Trump said, “I’ve always had a great relationship with President Xi, and I look forward to getting along with China.” This comment, by the way, followed his repeated calls for “fairness” in trade and a “level playing field” between the two nations.

Meanwhile, China’s Ministry of Commerce has also shown an openness to negotiation. Spokesperson He Yadong said yesterday that:

“China is willing to work with the US to push bilateral economic and trade relations in a stable, healthy, and sustainable direction.”

He added that this would be based on “mutual respect, peaceful coexistence, and win-win cooperation.”

Trump and Xi’s budding bromance

Trump is practically obsessed with Xi. In the Davos speech, he said, “I like President Xi very much. I’ve always liked him.” The feeling is mutual enough. A phone call between the two friends last week covered a wide range of topics, including TikTok, the ongoing fentanyl crisis, and trade policies.

According to Trump, the conversation was “a very good one.” He also added that he and Xi understand each other on a “fundamental level.” That’s a world leader’s equivalent of a PDA basically.

The Chinese government’s readout from Jan. 23 focused on the economic ties between the two nations, calling their trade relationship mutually beneficial. However, it omitted any mention of TikTok, which has been a sensitive issue in US-China relations.

The tariff issue remains front and center. On Jan. 20, the White House announced plans to investigate China over alleged practices harming US commerce. This follows Trump’s earlier campaign threats to impose tariffs as high as 60% on Chinese goods.

“Tariffs are not conducive to China, the US, or the entire world,” He Yadong said. He stressed the need for better communication and cooperation, urging both sides to properly manage their differences.

China injects liquidity while trade deficit looms

On the financial front, China is making decisions to stabilize its economy. The People’s Bank of China announced this morning that it had injected 200 billion yuan (approximately $27.44 billion) into the financial system through its medium-term lending facility.

The interest rate remains at 2.0%, unchanged from the previous month. This brings the total outstanding loans under this facility to 4.294 trillion yuan. While this tool has traditionally been used to set China’s benchmark lending rates, the central bank is gradually moving to shorter-term monetary policy tools.

Amid these developments, the US-China trade deficit remains a major sticking point. According to US government statistics, the trade deficit with China reached over $270 billion between January and November 2024.

This is a slight improvement from the $280 billion deficit in 2023. For context, the deficit was nearly $308 billion in 2020, Trump’s last full year in office during his first tenure.

Trump has repeatedly called the trade imbalance “massive” and vowed to address it. Speaking to the world leaders at Davos, he said the US and China do not currently have a “fair relationship” when it comes to trade.

Meanwhile, European Union officials are closely monitoring these developments. Economics Commissioner Valdis Dombrovskis, also speaking in Davos, admitted that Europe is falling behind the US and China in terms of productivity and economic growth.

“We are working to make the competitiveness of the European economy a priority,” he said, blaming structural challenges like slow productivity growth.

The EU has also vowed to respond proportionately if Trump imposes tariffs on European goods. “If there is a need to defend our economic interests, we will be responding in a proportionate way,” Dombrovskis said in a separate interview. He added that the US and Europe must work together to prevent more damage to global growth.

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